FirstMerit (FMER) 10-Q 2014 Q3 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 September 30, 2014
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 10/28/2014
Common Stock, no par value	165,397,413

1

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS
				Page
Glossary of Acronyms and Abbreviations				4
PART 1. FINANCIAL INFORMATION				5
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS				5
	CONSOLIDATED BALANCE SHEETS			5
	CONSOLIDATED STATEMENTS OF INCOME			6
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			7
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			8
	CONSOLIDATED STATEMENTS OF CASH FLOWS			9
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			10
	Note	1	Summary of Significant Accounting Policies	10
	Note	2	Investment Securities	13
	Note	3	Loans	23
	Note	4	Allowance for Loan Losses	33
	Note	5	Goodwill and Other Intangible Assets	55
	Note	6	Shareholders' Equity	56
	Note	7	Segment Information	57
	Note	8	Derivatives and Hedging Activities	59
	Note	9	Benefit Plans	64
	Note	10	Fair Value Measurement	64
	Note	11	Mortgage Servicing Rights and Mortgage Servicing Activity	77
	Note	12	Contingencies and Guarantees	78
	Note	13	Changes and Reclassifications Out of Accumulated Other Comprehensive Income	83
	Note	14	Subsequent Events	84
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.				85
	Consolidated Financial Highlights			85
	Highlights of Third Quarter of 2014 Performance			86
	Regulation and Supervision			88
		New Capital Rules		89
		Stress Testing		89
		Other Legislation		90
	Non-GAAP Financial Measures			90
	Results of Operations			96
		Average Tax-Equivalent Balance Sheets		96
		Net Interest Income		98
		Noninterest Income		100
		Noninterest Expense		101
		Income Taxes		102
	Line of Business Results			102
	Financial Condition			104
		Investment Securities		104
		Loans		106
			Originated Loans	107

2

FIRSTMERIT CORPORATION AND SUBSIDARIES FORM 10-Q TABLE OF CONTENTS
				Page
			Acquired Loans	108
			Covered Loans and Related Loss Share Receivable	108
		Allowance for Loan Losses and Reserve for Unfunded Commitments		108
			Allowance for Originated Loan and Lease Losses	109
			Allowance for Acquired Loan Losses	114
			Allowance for Covered Loan Losses	114
		Asset Quality (excluding acquired loans and covered assets)		115
		Deposits, Securities Sold Under Agreements to Repurchase, Wholesale Borrowings and Long-Term Debt		118
		Capital Resources		119
			Shareholders' Equity	119
			Capital Adequacy	120
	Risk Management			121
		Market Risk Management		121
		Liquidity Risk Management		123
		Operational Risk Management		124
		Critical Accounting Policies		124
		Off-Balance Sheet Arrangements		125
		Forward-Looking Statements - Safe-harbor Statement		125
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.				126
ITEM 4. CONTROLS AND PROCEDURES.				127
PART II. OTHER INFORMATION				127
	ITEM 1. LEGAL PROCEEDINGS			127
	ITEM 1A. RISK FACTORS			127
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			128
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES			128
	ITEM 4. MINE SAFETY DISCLOSURES			128
	ITEM 5. OTHER INFORMATION			128
	ITEM 6. EXHIBIT			129
SIGNATURES				130
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

3

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

Acquisition Date	Citizens Republic Bancorp acquisition date of April 12, 2013	FHLMC	Federal Home Loan Mortgage Corporation
ALCO	Asset/Liability Management Committee	FINRA	Financial Industry Regulatory Authority
ALL	Allowance for loan losses	FNMA	Federal National Mortgage Association
AOCI	Accumulated other comprehensive income (loss)	FRAP	Fixed Rate Advantage Program
ASC	Accounting standards codification	FRB	Federal Reserve Bank
ASU	Accounting standards update	GAAP	United States generally accepted accounting principles
Bank	FirstMerit Bank N.A.	GSE	Government sponsored enterprise
Basel I	Basel Committee's 1988 Capital Accord	ISDA	International Swaps and Derivatives Association
Basel III	Basel Committee regulatory capital reforms, Third Basel Accord	Management	FirstMerit Corporation's Management
BHC	Bank holding company	MBS	Mortgage-backed securities
CFPB	Bureau of Consumer Financial Protection	MSRs	Mortgage servicing rights
Citizens	Citizens Republic Bancorp, Inc.	NASDAQ	NASDAQ Global Select Market
CLO	Collateralized loan obligations	NYSE	New York Stock Exchange
CMO	Collateralized mortgage obligations	OCC	Office of the Comptroller of the Currency
Common Stock	Common Shares, without par value	OCI	Other comprehensive income (loss)
Corporation	FirstMerit Corporation and its Subsidiaries	OREO	Other real estate owned
CPR	Conditional Prepayment Rate	OTTI	Other-than-temporary impairment
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	Parent Company	FirstMerit Corporation
EPS	Earnings per share	Preferred Stock	5.875% Non-Cumulative Perpetual Preferred Stock, Series A
EVE	Economic value of equity	ROA	Return on average assets
FASB	Financial Accounting Standards Board	ROE	Return on average equity
FDIC	The Federal Deposit Insurance Corporation	SEC	United States Securities and Exchange Commission
FCM	Futures commission merchant	TARP	Troubled Asset Relief Program
Federal Reserve	The Board of Governors of the Federal Reserve System	TDR	Troubled debt restructuring
FHLB	Federal Home Loan Bank	TE	Fully taxable equivalent
		U.S. Treasury	United States Department of the Treasury

4

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDARIES
(In thousands, except share data)	September 30,			December 31,			September 30,
(Unaudited, except for December 31, 2013)	2014			2013			2013
ASSETS
Cash and due from banks	$	429,699		$	571,171		$	505,228
Interest-bearing deposits in banks	55,629			346,651			742,039
Total cash and cash equivalents	485,328			917,822			1,247,267
Investment securities:
Held-to-maturity	3,002,262			2,935,688			2,749,934
Available-for-sale	3,462,990			3,273,174			3,256,259
Other investments	148,421			180,803			270,369
Loans held for sale	19,512			11,622			17,813
Loans	15,242,026			14,300,972			14,260,836
Allowance for loan losses	(140,077		)	(141,252		)	(143,835		)
Net loans	15,101,949			14,159,720			14,117,001
Premises and equipment, net	318,690			327,054			324,337
Goodwill	741,740			741,740			741,740
Intangible assets, net	73,953			82,755			85,447
Covered other real estate	51,434			65,234			70,791
Accrued interest receivable and other assets	1,201,928			1,216,416			1,256,772
Total assets	$	24,608,207		$	23,912,028		$	24,137,730
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	5,535,886		$	5,459,029		$	5,461,674
Interest-bearing	3,043,952			3,026,735			2,815,681
Savings and money market accounts	8,396,064			8,587,167			8,575,292
Certificates and other time deposits	2,391,009			2,460,670			2,636,886
Total deposits	19,366,911			19,533,601			19,489,533
Federal funds purchased and securities sold under agreements to repurchase	1,273,290			851,535			1,049,801
Wholesale borrowings	608,463			200,600			200,858
Long-term debt	249,933			324,428			324,425
Accrued taxes, expenses and other liabilities	289,179			298,970			418,468
Total liabilities	21,787,776			21,209,134			21,483,085
Shareholders' equity:
5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value: authorized 115,000 shares; 100,000 issued	100,000			100,000			100,000
Common Stock warrant	3,000			3,000			3,000
Common Stock, without par value; authorized 300,000,000 shares; issued: September 30, 2014 and December 31, 2013 - 170,183,540 shares; September 30, 2013 - 170,179,305 shares	127,937			127,937			127,937
Capital surplus	1,390,207			1,390,643			1,388,638
Accumulated other comprehensive loss	(49,583		)	(66,876		)	(83,613		)
Retained earnings	1,371,453			1,277,975			1,248,554
Treasury stock, at cost: September 30, 2014 - 4,799,239; December 31, 2013 - 5,127,332 shares; September 30, 2013 - 5,134,681 shares	(122,583		)	(129,785		)	(129,871		)
Total shareholders' equity	2,820,431			2,702,894			2,654,645
Total liabilities and shareholders' equity	$	24,608,207		$	23,912,028		$	24,137,730

See accompanying notes to the consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands except for per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
(Unaudited)	2014		2013		2014		2013
Interest income:
Loans and loans held for sale	$	170,648	$	182,107	$	513,678	$	459,313
Investment securities:
Taxable	32,072		29,766		96,347		78,143
Tax-exempt	5,477		5,624		16,372		15,767
Total investment securities interest	37,549		35,390		112,719		93,910
Total interest income	208,197		217,497		626,397		553,223
Interest expense:
Deposits:
Interest bearing	755		809		2,236		1,784
Savings and money market accounts	5,570		6,495		16,605		18,279
Certificates and other time deposits	2,846		1,712		8,319		7,149
Securities sold under agreements to repurchase	268		306		697		949
Wholesale borrowings	1,397		936		3,917		2,955
Long-term debt	3,783		3,899		11,566		9,390
Total interest expense	14,619		14,157		43,340		40,506
Net interest income	193,578		203,340		583,057		512,717
Provision for loan losses	9,192		6,379		38,982		23,634
Net interest income after provision for loan losses	184,386		196,961		544,075		489,083
Noninterest income:
Trust department income	10,300		9,608		30,118		24,515
Service charges on deposits	18,684		22,146		53,860		55,315
Credit card fees	13,754		13,588		39,361		38,128
ATM and other service fees	6,182		5,216		17,998		13,496
Bank owned life insurance income	4,218		4,351		11,840		12,889
Investment services and insurance	3,606		3,403		10,974		9,247
Investment securities gains/(losses), net	14		—		150		(2,803		)
Loan sales and servicing income	4,740		3,644		12,932		19,492
Other operating income	8,235		9,134		32,331		27,644
Total noninterest income	69,733		71,090		209,564		197,923
Noninterest expense:
Salaries, wages, pension and employee benefits	90,593		97,390		269,071		260,395
Net occupancy expense	13,887		13,816		45,248		35,444
Equipment expense	12,188		11,040		36,366		28,698
Stationery, supplies and postage	3,723		3,801		11,820		9,304
Bankcard, loan processing and other costs	11,151		40,786		33,795		61,043
Professional services	5,270		9,768		15,373		32,322
Amortization of intangibles	2,933		2,972		8,802		5,700
FDIC insurance expense	2,988		4,925		14,492		12,601
Other operating expense	20,412		26,101		64,911		60,126
Total noninterest expense	163,145		210,599		499,878		505,633
Income before income tax expense	90,974		57,452		253,761		181,373
Income tax expense	27,076		16,737		76,889		54,863
Net income	63,898		40,715		176,872		126,510
Less: Net income allocated to participating shareholders	519		310		1,433		1,102
Preferred Stock dividends	1,469		1,469		4,407		3,868
Net income attributable to common shareholders	$	61,910	$	38,936	$	171,032	$	121,540
Net income used in diluted EPS calculation	$	61,910	$	38,936	$	171,032	$	121,540
Weighted average number of common shares outstanding - basic	165,389		165,044		165,263		144,402
Weighted average number of common shares outstanding - diluted	165,804		165,874		165,916		147,392
Basic earnings per common share	$	0.37	$	0.24	$	1.03	$	0.84
Diluted earnings per common share	$	0.37	$	0.23	$	1.03	$	0.82
Dividend per common share	$	0.16	$	0.16	$	0.48	$	0.48

See accompanying notes to the consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Three Months Ended September 30, 2014									Nine Months Ended September 30, 2014
	Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	90,974		$	27,076		$	63,898		$	253,761		$	76,889		$	176,872
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	(16,207		)	(5,672		)	(10,535		)	24,293			8,503			15,790
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(563		)	(197		)	(366		)	(1,551		)	(543		)	(1,008		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(14		)	(5		)	(9		)	(150		)	(53		)	(97		)
Net change in unrealized gains/(losses) on securities available for sale	(16,784		)	(5,874		)	(10,910		)	22,592			7,907			14,685
Pension plans and other postretirement benefits:
Net gains/(losses) arising during the period	—			—			—			—			—			—
Amortization of actuarial gain	768			269			499			2,398			839			1,559
Amortization of prior service cost reclassified to other noninterest expense	516			181			335			1,614			565			1,049
Net change from defined benefit pension plans	1,284			450			834			4,012			1,404			2,608
Total other comprehensive gains/(losses)	(15,500		)	(5,424		)	(10,076		)	26,604			9,311			17,293
Comprehensive income	$	75,474		$	21,652		$	53,822		$	280,365		$	86,200		$	194,165

(In thousands) (Unaudited)	Three Months Ended September 30, 2013									Nine Months Ended September 30, 2013
	Pretax			Tax			After tax			Pretax			Tax			After tax
Net Income	$	57,452		$	16,737		$	40,715		$	181,373		$	54,863		$	126,510
Other comprehensive income/(loss)
Unrealized gains and losses on securities available for sale:
Changes in unrealized securities' holding gains/(losses)	(17,491		)	(6,123		)	(11,368		)	(104,853		)	(36,699		)	(68,154		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(534		)	(187		)	(347		)	(1,654		)	(579		)	(1,075		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(1		)	—			(1		)	2,802			981			1,821
Net change in unrealized gains/(losses) on securities available for sale	(18,026		)	(6,310		)	(11,716		)	(103,705		)	(36,297		)	(67,408		)
Pension plans and other postretirement benefits:
Net gain/(loss) arising during the period	—			—			—			—			—			—
Amortization of actuarial gain	—			—			—			—			—			—
Amortization of prior service cost reclassified to other noninterest expense	—			—			—			—			—			—
Net change from defined benefit pension plans	—			—			—			—			—			—
Total other comprehensive gains/(losses)	(18,026		)	(6,310		)	(11,716		)	(103,705		)	(36,297		)	(67,408		)
Comprehensive income	$	39,426		$	10,427		$	28,999		$	77,668		$	18,566		$	59,102

See accompanying notes to the consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Preferred Stock		Common Stock		Common Stock Warrant		Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2012	$	—	$	127,937	$	—	$	475,979		$	(16,205	)	$	1,195,850		$	(138,359	)	$	1,645,202
Net income	—		—		—		—			—			126,510			—			126,510
Other comprehensive income	—		—		—		—			(67,408		)	—			—			(67,408		)
Comprehensive income	—		—		—		—			(67,408		)	126,510			—			59,102
Cash dividends - Preferred Stock	—		—		—		—			—			(3,868		)	—			(3,868		)
Cash dividends - Common Stock ($0.48 per share)	—		—		—		—			—			(69,938		)	—			(69,938		)
Common stock issued in connection with Citizens acquisition (55,468,283 shares)	—		—		—		925,272			—			—			—			925,272
Nonvested (restricted) shares granted (539,132 shares)	—		—		—		(19,257		)	—			—			12,443			(6,814		)
Restricted stock activity (200,898 shares)	—		—		—		956			—			—			(3,564		)	(2,608		)
Deferred compensation trust (174,597 increase in shares)	—		—		—		391			—			—			(391		)	—
Share-based compensation	—		—		—		8,747			—			—			—			8,747
Issuance of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A	100,000		—		—		(3,450		)	—			—			—			96,550
Issuance of a Common Stock warrant to the U.S. Treasury for Citizens TARP warrant (2,408,203 shares)	—		—		3,000		—			—			—			—			3,000
Balance at September 30, 2013	$	100,000	$	127,937	$	3,000	$	1,388,638		$	(83,613	)	$	1,248,554		$	(129,871	)	$	2,654,645
Balance at December 31, 2013	$	100,000	$	127,937	$	3,000	$	1,390,643		$	(66,876	)	$	1,277,975		$	(129,785	)	$	2,702,894
Net income	—		—		—		—			—			176,872			—			176,872
Other comprehensive income	—		—		—		—			17,293			—			—			17,293
Comprehensive income	—		—		—		—			17,293			176,872			—			194,165
Cash dividends - Preferred Stock	—		—		—		—			—			(4,407		)	—			(4,407		)
Cash dividends - Common Stock ($0.48 per share)	—		—		—		—			—			(78,987		)	—			(78,987		)
Nonvested (restricted) shares granted (575,381 shares)	—		—		—		(13,029		)	—			—			13,128			99
Restricted stock activity (247,288 shares)	—		—		—		952			—			—			(5,242		)	(4,290		)
Deferred compensation trust (219,315 increase in shares)	—		—		—		684			—			—			(684		)	—
Share-based compensation	—		—		—		10,957			—			—			—			10,957
Balance as of September 30, 2014	$	100,000	$	127,937	$	3,000	$	1,390,207		$	(49,583	)	$	1,371,453		$	(122,583	)	$	2,820,431

See accompanying notes to the consolidated financial statements.

8

CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited)	Nine Months Ended September 30,
	2014			2013
Operating Activities
Net income	$	176,872		$	126,510
Adjustments to reconcile net income to net cash provided and used by operating activities:
Provision for loan losses	38,982			23,634
Provision/(benefit) for deferred income taxes	28,039			(16,824		)
Depreciation and amortization	39,845			28,001
Benefit attributable to FDIC loss share	3,835			8,890
Accretion of acquired loans	(106,997		)	(94,916		)
Amortization and accretion of investment securities, net
Available for sale	7,114			15,141
Held to maturity	6,419			5,454
(Gains)/losses on sales and calls of available-for-sale investment securities, net	(150		)	2,803
Originations of loans held for sale	(264,856		)	(462,948		)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets	262,341			479,623
Gains on sales of loans, net	(5,375		)	(10,805		)
Amortization of intangible assets	8,802			5,700
Recognition of stock compensation expense	10,957			8,747
Net decrease (increase) in other assets	(5,245		)	133,958
Net increase (decrease) in other liabilities	(12,147		)	23,330
NET CASH PROVIDED BY OPERATING ACTIVITIES	188,436			276,298
Investing Activities
Proceeds from sale of investment securities
Available for sale	13,008			2,179,728
Other	32,486			—
Held to maturity	5,012			897
Proceeds from prepayments, calls, and maturities of investment securities
Available for sale	360,600			579,023
Held to maturity	262,560			151,626
Purchases of investment securities
Available for sale	(545,201		)	(847,968		)
Held to maturity	(344,606		)	(1,559,733		)
Other	(142		)	(3,097		)
Net (increase)/decrease in loans and leases	(886,035		)	158,998
Purchases of premises and equipment	(45,618		)	(27,237		)
Sales of premises and equipment	26,114			181
Cash received for acquisition, net of cash paid	—			189,009
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES	(1,121,822		)	821,427
Financing Activities
Net increase in demand accounts	94,074			626,602
Net (decrease)/increase in savings and money market accounts	(191,103		)	164,638
Net decrease in certificates and other time deposits	(69,661		)	(337,887		)
Net increase/(decrease) in securities sold under agreements to repurchase	421,755			(169,729		)
Net increase/(decrease) in long-term debt	(74,451		)	249,927
Net increase/(decrease) in wholesale borrowings	407,863			(655,345		)
Net proceeds from issuance of preferred stock	—			96,550
Cash dividends - common	(78,987		)	(69,938		)
Cash dividends - preferred	(4,407		)	(3,868		)
Restricted stock activity	(4,191		)	(9,422		)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	500,892			(108,472		)
(Decrease)/Increase in cash and cash equivalents	(432,494		)	989,253
Cash and cash equivalents at beginning of year	917,822			258,014
Cash and cash equivalents at end of year	$	485,328		$	1,247,267
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	$	46,349		$	42,931
Federal income taxes	12,573			27,662

See accompanying notes to the consolidated financial statements.

9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

FirstMerit Corporation and subsidiaries is a diversified financial services company headquartered in Akron, Ohio with 381 banking offices in the Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania areas. The Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations.

1.    Summary of Significant Accounting Policies

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

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

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

The Consolidated Balance Sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all adjustments (consisting only of normally recurring adjustments) that are, in the opinion of Management, necessary for a fair statement of the results for the interim periods presented. Certain reclassifications of prior year’s amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules of the SEC. The unaudited consolidated financial statements of the Corporation as of September 30, 2014 and 2013 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). There have been no significant changes in the current quarter to the Corporation’s accounting policies as disclosed in the 2013 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.

10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Recently Adopted Accounting Standards

FASB ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The amendments in ASU 2014-01 do not change the existing accounting methods, but permit reporting entities to make an accounting policy election to account for their investments in qualified affordable projects using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in ASU 2014-01 are effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014, and should be applied retrospectively to all periods presented. The Corporation early adopted ASU 2014-01 in the first quarter of 2014. Amortization of the initial investment cost of qualifying projects is now recorded in the provision for income taxes together with the tax credits and benefits received. Previously, the amortization was recorded as other noninterest expense. All prior period amounts have been restated to reflect the adoption of the amendment, which resulted in an offsetting decrease to other noninterest expense and increase to the provision for income taxes of approximately $0.8 million and $2.3 million for the three and nine months ended September 30, 2013, respectively.

Recently Issued Accounting Standards

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

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

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

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

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

11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

first annual period presented (i.e., the earliest presented comparative period). The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

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

FASB ASU 2014-09, Revenue from Contracts with Customers. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue recognition guidance. ASU 2014-09 creates a single, principle-based revenue recognition framework and will require entities to apply significantly more judgment and expanded disclosures surrounding revenue recognition. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. The amendments in ASU 2014-09 are effective for fiscal years beginning after December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. Early adoption is prohibited. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements.

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

FASB ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-04 amends the guidance in ASC 310-40 by clarifying when an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Additionally, the amendments require interim and annual disclosure of both 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in ASU 2014-04 are effective for annual periods, and interim period within those annual periods, beginning after December 15, 2014. The amendments can either be adopted using a modified

12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

retrospective or a prospective transition method. The adoption of this accounting guidance is not expected to have a material effect on the Corporation's financial position or results of operations.

2.     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 OCI in shareholders' equity.

		September 30, 2014
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	229,528	$	8,146	$	(607	)	$	237,067
	Residential mortgage-backed securities:
	U.S. government agencies	983,038		20,395		(7,046		)	996,387
	Commercial mortgage-backed securities:
	U.S. government agencies	86,485		167		(1,888		)	84,764
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,635,780		3,512		(38,975		)	1,600,317
	Non-agency	7		—		—			7
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	195,512		298		(1,793		)	194,017
	Asset-backed securities:
	Collateralized loan obligations	297,389		289		(7,257		)	290,421
	Corporate debt securities	61,638		—		(7,044		)	54,594
	Total debt securities	3,489,377		32,807		(64,610		)	3,457,574
Equity securities
	Marketable equity securities	2,916		—		—			2,916
	Non-marketable equity securities	2,500		—		—			2,500
	Total equity securities	5,416		—		—			5,416
	Total securities available for sale	$	3,494,793	$	32,807	$	(64,610	)	$	3,462,990
Securities held-to-maturity
Debt securities
	U.S. treasuries	$	5,000	$	3	$	—		$	5,003
	U.S. government agency debentures	25,000		—		(756		)	24,244
	U.S. states and political subdivisions	539,014		12,256		(452		)	550,818
	Residential mortgage-backed securities:
	U.S. government agencies	602,220		4,608		(5,992		)	600,836
	Commercial mortgage-backed securities:
	U.S. government agencies	65,704		28		(676		)	65,056
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,415,421		66		(56,260		)	1,359,227
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	258,436		346		(8,570		)	250,212
	Corporate debt securities	91,467		489		(180		)	91,776
	Total securities held to maturity	$	3,002,262	$	17,796	$	(72,886	)	$	2,947,172

13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		December 31, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	258,787	$	7,376	$	(3,796	)	$	262,367
	Residential mortgage-backed securities:
	U.S. government agencies	962,687		21,662		(14,427		)	969,922
	Commercial mortgage-backed securities:
	U.S. government agencies	72,048		7		(2,488		)	69,567
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,566,262		4,199		(52,068		)	1,518,393
	Non-agency	9		—		—			9
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	104,152		273		(2,157		)	102,268
	Asset-backed securities:
	Collateralized loan obligations	297,259		760		(4,332		)	293,687
	Corporate debt securities	61,596		—		(10,952		)	50,644
	Total debt securities	3,322,800		34,277		(90,220		)	3,266,857
Equity securities
	Marketable equity securities	3,036		—		—			3,036
	Non-marketable equity securities	3,281		—		—			3,281
	Total equity securities	6,317		—		—			6,317
	Total securities available for sale	$	3,329,117	$	34,277	$	(90,220	)	$	3,273,174
Securities held-to-maturity
Debt securities
	U.S. Treasuries	$	5,000	$	4	$	—		$	5,004
	U.S. government agencies debentures	25,000		—		(1,348		)	23,652
	U.S. states and political subdivisions	480,703		5,335		(10,459		)	475,579
	Residential mortgage-backed securities:
	U.S. government agencies	569,960		1,108		(11,617		)	559,451
	Commercial mortgage-backed securities:
	U.S. government agencies	56,596		—		(1,190		)	55,406
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,464,732		—		(81,818		)	1,382,914
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	240,069		6		(11,052		)	229,023
	Corporate debt securities	93,628		308		(725		)	93,211
	Total securities held to maturity	$	2,935,688	$	6,761	$	(118,209	)	$	2,824,240

14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		September 30, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	267,470	$	8,249	$	(3,495	)	$	272,224
	Residential mortgage-backed securities:
	U.S. government agencies	983,255		26,155		(10,035		)	999,375
	Commercial mortgage-backed securities:
	U.S. government agencies	58,129		23		(2,220		)	55,932
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,538,991		5,710		(38,995		)	1,505,706
	Non-agency	9		—		—			9
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	98,440		404		(1,690		)	97,154
	Asset-backed securities:
	Collateralized loan obligations	271,856		71		(3,295		)	268,632
	Corporate debt securities	61,582		—		(10,732		)	50,850
	Total debt securities	3,279,732		40,612		(70,462		)	3,249,882
Equity Securities
	Marketable equity securities	3,096		—		—			3,096
	Non-marketable equity securities	3,281		—		—			3,281
	Total equity securities	6,377		—		—			6,377
	Total securities available for sale	$	3,286,109	$	40,612	$	(70,462	)	$	3,256,259
Securities held-to-maturity
Debt securities
	U.S. treasuries	$	5,000	$	5	$	—		$	5,005
	U.S. government agency debentures	25,000		—		(1,136		)	23,864
	U.S states and political subdivisions	453,230		5,093		(9,257		)	449,066
	Residential mortgage-backed securities:
	U.S. government agencies	377,980		1,068		(8,578		)	370,470
	Commercial mortgage-backed securities:
	U.S. government agencies	50,179		12		(1,025		)	49,166
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,523,792		179		(68,719		)	1,455,252
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	220,410		—		(8,936		)	211,474
	Corporate debt securities	94,343		294		(501		)	94,136
	Total securities held to maturity	$	2,749,934	$	6,651	$	(98,152	)	$	2,658,433

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

15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(Dollars in thousands)	September 30, 2014
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	149	$	1,066	$	155,088	$	158,825
Michigan	175	856		145,897		149,715
Illinois	72	1,618		113,017		116,517
Wisconsin	83	846		67,681		70,251
Texas	63	800		49,440		50,431
Pennsylvania	47	987		46,010		46,389
Minnesota	41	685		27,476		28,074
Washington	30	989		29,011		29,658
New Jersey	36	754		26,145		27,143
Missouri	19	1,019		18,814		19,357
New York	19	618		11,448		11,734
Other	122	641		76,879		78,034
Total general obligation bonds	856	$	918	$	766,906	$	786,128

(Dollars in thousands)	December 31, 2013
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	152	$	1,048	$	158,641	$	159,232
Michigan	166	744		122,198		123,571
Illinois	75	1,314		96,863		98,521
Wisconsin	86	648		54,516		55,747
Texas	69	771		54,295		53,204
Pennsylvania	50	898		47,835		44,883
Minnesota	45	663		29,840		29,816
Washington	30	930		28,393		27,906
New Jersey	38	722		27,101		27,440
Missouri	20	969		19,253		19,382
New York	22	585		13,064		12,878
California	18	599		10,651		10,788
Other	115	631		74,918		72,572
Total general obligation bonds	886	$	831	$	737,568	$	735,940

(Dollars in thousands)	September 30, 2013
U.S. State	# of Issuers	Average Issue Size, Fair Value		Amortized Cost		Fair Value
Ohio	153	$	945	$	145,769	$	144,584
Illinois	68	1,017		69,302		69,149
Texas	69	774		54,428		53,427
Pennsylvania	55	894		51,556		49,194
Wisconsin	82	640		51,572		52,448
Minnesota	46	658		30,115		30,278
New Jersey	38	726		27,130		27,604
Michigan	178	823		140,651		146,448
Washington	31	943		29,594		29,222
Missouri	20	978		19,303		19,552
New York	22	590		13,082		12,970
California	18	604		10,666		10,873
Other	116	634		75,569		73,495
Total general obligation bonds	896	$	803	$	718,737	$	719,244

16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

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

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

(In thousands)	September 30, 2014		December 31, 2013		September 30, 2013
FRB stock	$	55,435	$	55,294	$	55,294
FHLB stock	92,547		125,032		214,586
Other	439		477		489
Total other investments	$	148,421	$	180,803	$	270,369

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

Securities with a carrying value of $3.3 billion, $3.2 billion, and $3.4 billion at September 30, 2014, December 31, 2013, and September 30, 2013, 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Realized Gains and Losses

The following table presents the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of those sales. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined using the specific identification method.

	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2014			2013		2014			2013
Realized gains	$	45		$	—	$	345		$	3,786
Realized losses	(31		)	—		(195		)	(6,589		)
Net securities (losses)/gains	$	14		$	—	$	150		$	(2,803	)

Gross Unrealized Losses and Fair Value

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

		September 30, 2014
		Less than 12 months						12 months or longer						Total
(In thousands)		Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	5,298	$	(10	)	5	$	22,729	$	(597	)	37	$	28,027	$	(607	)
	Residential mortgage-backed securities:
	U.S. government agencies	25,456		(86		)	2	248,946		(6,960		)	19	274,402		(7,046		)
	Commercial mortgage-backed securities:
	U.S. government agencies	9,095		(56		)	2	45,208		(1,832		)	6	54,303		(1,888		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	436,857		(3,528		)	29	890,497		(35,447		)	63	1,327,354		(38,975		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	61,703		(264		)	6	67,029		(1,529		)	7	128,732		(1,793		)
	Asset-backed securities:
	Collateralized loan obligations	100,337		(1,904		)	13	151,668		(5,353		)	23	252,005		(7,257		)
	Corporate debt securities	—		—			0	54,594		(7,044		)	8	54,594		(7,044		)
	Total available-for-sale securities	$	638,746	$	(5,848	)	57	$	1,480,671	$	(58,762	)	163	$	2,119,417	$	(64,610	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	—	$	—		0	$	24,244	$	(756	)	1	$	24,244	$	(756	)
	U.S. states and political subdivisions	16,255		(78		)	20	29,783		(374		)	38	46,038		(452		)
	Residential mortgage-backed securities:
	U.S. government agencies	10,549		(64		)	1	188,704		(5,928		)	10	199,253		(5,992		)
	Commercial mortgage-backed securities:
	U.S. government agencies	26,346		(110		)	5	23,788		(566		)	3	50,134		(676		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	121,516		(1,195		)	8	1,208,939		(55,065		)	60	1,330,455		(56,260		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	8,026		(30		)	1	182,299		(8,540		)	17	190,325		(8,570		)
	Collateralized loan obligations:
	Non-agency	—		—			0	—		—			0	—		—
	Corporate debt securities	46,907		(180		)	16	—		—			0	46,907		(180		)
	Total held-to-maturity securities	$	229,599	$	(1,657	)	51	$	1,657,757	$	(71,229	)	129	$	1,887,356	$	(72,886	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		December 31, 2013
		Less than 12 months						12 months or longer						Total
(In thousands)		Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
Securities available-for-sale
	Debt securities:
	U.S. states and political subdivisions	$	38,039	$	(1,996	)	65	$	14,157	$	(1,800	)	25	$	52,196	$	(3,796	)
	Residential mortgage-backed securities:
	U.S. government agencies	434,761		(13,109		)	35	14,890		(1,318		)	2	449,651		(14,427		)
	Commercial mortgage-backed securities:
	U.S. government agencies	33,387		(1,491		)	5	16,944		(997		)	2	50,331		(2,488		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,135,151		(44,775		)	74	100,530		(7,293		)	7	1,235,681		(52,068		)
	Nonagency	—		—			—	1		—			1	1		—
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	43,747		(2,055		)	6	2,525		(102		)	1	46,272		(2,157		)
	Asset-backed securities
	Collateralized loan obligations	223,458		(4,332		)	33	—		—			—	223,458		(4,332		)
	Corporate debt securities	—		—			—	50,644		(10,952		)	8	50,644		(10,952		)
	Total available-for-sale securities	$	1,908,543	$	(67,758	)	218	$	199,691	$	(22,462	)	46	$	2,108,234	$	(90,220	)
Securities held-to-maturity
	Debt securities:
	U.S. government agency debentures	$	23,652	$	(1,348	)	1	$	—	$	—		—	$	23,652	$	(1,348	)
	U.S. states and political subdivisions	222,154		(10,276		)	353	2,478		(183		)	6	224,632		(10,459		)
	Residential mortgage-backed securities:
	U.S. government agencies	422,192		(11,617		)	22	—		—			—	422,192		(11,617		)
	Commercial mortgage-backed securities:
	U.S. government agencies	48,831		(1,190		)	8	—		—			—	48,831		(1,190		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,382,915		(81,818		)	66	—		—			—	1,382,915		(81,818		)
	Nonagency
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	208,863		(11,052		)	19	—		—			—	208,863		(11,052		)
	Collateralized loan obligations
	Nonagency
	Corporate debt securities	64,541		(725		)	23	—		—			—	64,541		(725		)
	Total held-to-maturity securities	$	2,373,148	$	(118,026	)	492	$	2,478	$	(183	)	6	$	2,375,626	$	(118,209	)

19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

		September 30, 2013
		Less than 12 months						12 months or longer						Total
(In thousands)		Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
Securities available-for-sale
Debt securities
	U.S. states and political subdivisions	$	57,258	$	(3,495	)	100	$	—	$	—		—	$	57,258	$	(3,495	)
	Residential mortgage-backed securities:
	U.S. government agencies	309,239		(10,035		)	23	—		—			—	309,239		(10,035		)
	Commercial mortgage-backed securities:
	U.S. government agencies	50,823		(2,220		)	7	—		—			—	50,823		(2,220		)
	Residential collateralized mortgage-backed securities:
	U.S. government agencies	1,073,105		(38,995		)	69	—		—			—	1,073,105		(38,995		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	38,938		(1,690		)	5	—		—			—	38,938		(1,690		)
	Asset-backed securities
	Collateralized loan obligations	165,359		(3,295		)	26	—		—			—	165,359		(3,295		)
	Corporate debt securities	—		—			—	50,850		(10,732		)	8	50,850		(10,732		)
	Total available-for-sale securities	$	1,694,722	$	(59,730	)	230	$	50,850	$	(10,732	)	8	$	1,745,572	$	(70,462	)
Securities held-to-maturity
Debt securities
	U.S. government agency debentures	$	23,864	$	(1,136	)	1	$	—	$	—		—	$	23,864	$	(1,136	)
	U.S. states and political subdivisions	226,853		(9,243		)	362	987		(14		)	1	227,840		(9,257		)
	Residential mortgage-backed securities:
	U.S. government agencies	252,007		(8,578		)	13	—		—			—	252,007		(8,578		)
	Commercial mortgage-backed securities:
	U.S. government agencies	44,168		(1,025		)	7	—		—			—	44,168		(1,025		)
	Residential collateralized mortgage securities:
	U.S. government agencies	1,416,238		(68,719		)	64	—		—			—	1,416,238		(68,719		)
	Commercial collateralized mortgage-backed securities:
	U.S. government agencies	191,402		(8,936		)	18	—		—			—	191,402		(8,936		)
	Corporate debt securities	66,774		(501		)	24	—		—			—	66,774		(501		)
	Total held-to-maturity securities	$	2,221,306	$	(98,138	)	489	$	987	$	(14	)	1	$	2,222,293	$	(98,152	)

At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Under the current OTTI accounting model for debt securities, an OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if the Corporation does not expect to sell the security, the Corporation must evaluate the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in OCI. Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the amortized cost basis, taking into

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 which the assessment shows the Corporation will recover the entire cost basis, Management does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in OCI, net of tax.

The investment securities portfolio was in a net unrealized loss position of $31.8 million at September 30, 2014, compared to a net unrealized loss position of $55.9 million at December 31, 2013 and a net unrealized loss position of $29.9 million at September 30, 2013. Gross unrealized losses were $64.6 million as of September 30, 2014, compared to $90.2 million at December 31, 2013, and $70.5 million at September 30, 2013. As of September 30, 2014, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. The fair values of the agency MBSs have been impacted by the rising interest rate environment relative to when they were purchased. The fair value of the CLOs have been impacted by increased supply which has widened spreads. Corporate debt securities are composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 2% of the fair value of the entire investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the market conditions which have caused risk premiums to increase, resulting in the decline in the fair value of the trust preferred securities.

Management believes the Corporation will fully recover the cost of these agency MBSs, CLOs, and corporate debt securities, and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, Management concluded that these securities were not other-than-temporarily impaired at September 30, 2014 and has recognized the total amount of the impairment in OCI, net of tax.

The Corporation also holds $290.4 million of CLOs with a gross unrealized loss position of $7.3 million as of September 30, 2014. The new Volcker regulations, as originally adopted, may affect the Corporation's ability to hold these CLOs. Management believes that its holdings of CLOs are not ownership interests in a covered fund prohibited by the Volcker regulations and, therefore, expects to be able to hold these investments until their stated maturities with no restriction.

Contractual Maturity of Debt Securities

The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of September 30, 2014. Estimated lives on MBSs may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

(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	$	—		$	—		$	12,583		$	2,969		$	16,749		$	9,163		$	—		$	—		$	7,501		$	—		$	48,965		3.59	%
Over one year through five years	—			—			66,352			820,635			35,549			1,561,512			7			154,809			—			—			2,638,864			2.22	%
Over five years through ten years	—			—			126,235			172,783			32,466			29,642			—			39,208			282,920			—			683,254			3.17	%
Over ten years	—			—			31,897			—			—			—			—			—			—			54,594			86,491			2.02	%
Fair Value	$	—		$	—		$	237,067		$	996,387		$	84,764		$	1,600,317		$	7		$	194,017		$	290,421		$	54,594		$	3,457,574		2.42	%
Amortized Cost	$	—		$	—		$	229,528		$	983,038		$	86,485		$	1,635,780		$	7		$	195,512		$	297,389		$	61,638		$	3,489,377
Weighted-Average Yield	—		%	—		%	5.23		%	2.63		%	2.12		%	1.98		%	3.48		%	1.97		%	2.61		%	0.95		%	2.42		%
Weighted-Average Maturity	—			—			6.20			3.98			3.95			3.82			1.99			3.69			6.06			13.06			4.37
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	5,003		$	84,201		$	—		$	6,194		$	—		$	—		$	—		$	—		$	—		$	95,398		1.70	%
Over one year through five years	—			—			68,480			478,503			14,874			1,312,389			—			159,582			—			91,776			2,125,604			1.85	%
Over five years through ten years	24,244			—			200,709			122,333			43,988			46,838			—			90,630			—			—			528,742			2.90	%
Over ten years	—			—			197,428			—			—			—			—			—			—			—			197,428			5.47	%
Fair Value	$	24,244		$	5,003		$	550,818		$	600,836		$	65,056		$	1,359,227		$	—		$	250,212		$	—		$	91,776		$	2,947,172		2.27	%
Amortized Cost	$	25,000		$	5,000		$	539,014		$	602,220		$	65,704		$	1,415,421		$	—		$	258,436		$	—		$	91,467		$	3,002,262
Weighted-Average Yield	1.43		%	0.25		%	4.70		%	2.15		%	2.08		%	1.60		%	—		%	2.28		%	—		%	2.22		%	2.27		%
Weighted-Average Maturity	5.08			0.33			9.65			4.61			4.92			4.10			—			4.78			—			3.28			4.95

22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

3.     Loans

    Loans outstanding as of September 30, 2014, December 31, 2013, and September 30, 2013, net of unearned income, consisted of the following:

(In thousands)		September 30, 2014			December 31, 2013			September 30, 2013
Originated loans:
Commercial		$	7,626,166		$	6,648,279		$	6,420,369
Residential mortgage		605,998			529,253			487,283
Installment		2,277,533			1,727,925			1,647,095
Home equity		1,062,013			920,066			889,372
Credit cards		160,113			148,313			145,113
Leases		339,936			239,551			199,907
	Total originated loans	12,071,759			10,213,387			9,789,139
Allowance for originated loan losses		(90,883		)	(96,484		)	(98,291		)
	Net originated loans	$	11,980,876		$	10,116,903		$	9,690,848
Acquired loans:
Commercial		$	1,272,244		$	1,725,970		$	1,963,746
Residential mortgage		410,065			470,652			466,594
Installment		809,820			1,004,569			1,080,298
Home equity		252,975			294,424			306,783
	Total acquired loans	2,745,104			3,495,615			3,817,421
Allowance for acquired loan losses		(6,206		)	(741		)	—
	Net acquired loans	$	2,738,898		$	3,494,874		$	3,817,421
Covered loans:
Commercial		$	262,319		$	375,860		$	422,225
Residential mortgage		43,672			50,679			52,796
Installment		5,148			6,162			6,361
Home equity		83,278			97,442			102,908
Loss share receivable		30,746			61,827			69,986
	Total covered loans	425,163			591,970			654,276
Allowance for covered loan losses		(42,988		)	(44,027		)	(45,544		)
	Net covered loans	$	382,175		$	547,943		$	608,732
Total loans:
Commercial		$	9,160,729		$	8,750,109		$	8,806,340
Residential mortgage		1,059,735			1,050,584			1,006,673
Installment		3,092,501			2,738,656			2,733,754
Home equity		1,398,266			1,311,932			1,299,063
Credit cards		160,113			148,313			145,113
Leases		339,936			239,551			199,907
Loss share receivable		30,746			61,827			69,986
	Total loans	15,242,026			14,300,972			14,260,836
Total allowance for loan losses		(140,077		)	(141,252		)	(143,835		)
	Total Net loans	$	15,101,949		$	14,159,720		$	14,117,001

23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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, 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 $6.4 million, $6.6 million and $7.5 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

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 ALL. 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 and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

Total outstanding acquired impaired loans as of September 30, 2014and 2013 were $659.7 million and $902.9 million, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three and nine months ended September 30, 2014 and 2013:    

	Three Months Ended September 30,												Nine Months Ended September 30,
Acquired Impaired Loans	2014						2013						2014						2013
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	137,442		$	519,250		$	120,067		$	752,682		$	136,646		$	601,000		$	—		$	—
Additions due to Citizens acquisition on April 12, 2013	—			—			—			—			—			—			131,558			819,715
Accretion	(12,950		)	12,950			(8,914		)	8,914			(37,437		)	37,437			(18,004		)	18,004
Net reclassifications from nonaccretable to accretable	6,646			—			—			—			36,659			—			—			—
Payments received, net	—			(53,150		)	—			(90,729		)	—			(159,387		)	—			(166,852		)
Disposals	(4,714		)	—			(4,546		)	—			(9,444		)	—			(6,947		)	—
Balance at end of period	$	126,424		$	479,050		$	106,607		$	670,867		$	126,424		$	479,050		$	106,607		$	670,867

24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 date of acquisition with no carryover of the related ALL and are accounted for as acquired impaired loans. A loss share receivable was recorded at the date of acquisition 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.

Changes in the loss share receivable associated with covered loans for the three and nine months ended September 30, 2014 and 2013 were as follows:

Loss Share Receivable	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2014			2013			2014			2013
Balance at beginning of period	$	43,981		$	83,910		$	61,827		$	113,734
Amortization	(6,932		)	(5,226		)	(16,980		)	(19,327		)
Increase/(decrease) due to impairment (recapture) on covered loans	2,908			1,032			3,835			8,890
FDIC reimbursement	(7,006		)	(7,284		)	(13,330		)	(23,231		)
Covered loans paid in full	(2,205		)	(2,446		)	(4,606		)	(10,080		)
Balance at end of the period	$	30,746		$	69,986		$	30,746		$	69,986

Total outstanding covered impaired loans were $520.3 million and $811.3 million as of September 30, 2014 and 2013, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for covered impaired loans were as follows for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,												Nine Months Ended September 30,
Covered Impaired Loans	2014						2013						2014						2013
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	53,655		$	316,481		$	81,758		$	537,257		$	67,282		$	403,692		$	113,288		$	762,386
Accretion	(9,683		)	9,683			(14,056		)	14,056			(34,438		)	34,438			(51,327		)	51,327
Net reclassifications from non-accretable to accretable	8,684			—			12,745			—			20,290			—			28,726			—
Payments received, net	—			(41,598		)	—			(103,514		)	—			(153,564		)	—			(365,914		)
Disposals	(711		)	—			(1,309		)	—			(1,189		)	—			(11,549		)	—
Balance at end of period	$	51,945		$	284,566		$	79,138		$	447,799		$	51,945		$	284,566		$	79,138		$	447,799

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.

25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

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

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

As of September 30, 2014
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	1,833	$	321	$	3,302	$	5,456	$	5,033,864	$	5,039,320	$	120	$	12,124
CRE	4,111		1,251		5,918		11,280		2,108,454		2,119,734		523		10,223
Construction	255		—		—		255		466,857		467,112		—		—
Leases	—		—		—		—		339,936		339,936		—		—
Consumer
Installment	12,040		3,553		4,353		19,946		2,257,587		2,277,533		3,630		3,205
Home Equity Lines	1,975		538		705		3,218		1,058,795		1,062,013		390		1,426
Credit Cards	746		434		688		1,868		158,245		160,113		423		412
Residential Mortgages	11,533		2,836		7,703		22,072		583,926		605,998		3,452		11,931
Total	$	32,493	$	8,933	$	22,669	$	64,095	$	12,007,664	$	12,071,759	$	8,538	$	39,321
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	$	626	$	5,478	$	5,303	$	11,407	$	540,082	$	551,489	$	—	$	876
CRE	4,568		2,269		20,776		27,613		682,882		710,495		370		2,072
Construction	3,179		—		687		3,866		6,394		10,260		—		—
Consumer
Installment	6,764		2,164		1,045		9,973		799,847		809,820		542		1,059
Home Equity Lines	2,540		1,234		2,872		6,646		246,329		252,975		1,279		680
Residential Mortgages	262		2,724		5,710		8,696		401,369		410,065		520		1,305
Total	$	17,939	$	13,869	$	36,393	$	68,201	$	2,676,903	$	2,745,104	$	2,711	$	5,992
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	$	288	$	—	$	6,535	$	6,823	$	49,253	$	56,076	n/a		n/a
CRE	1,656		1,524		66,219		69,399		123,347		192,746		n/a		n/a
Construction	—		—		11,981		11,981		1,516		13,497		n/a		n/a
Consumer
Installment	67		—		—		67		5,081		5,148		n/a		n/a
Home Equity Lines	2,327		315		4,065		6,707		76,571		83,278		n/a		n/a
Residential Mortgages	6,216		402		3,734		10,352		33,320		43,672		n/a		n/a
Total	$	10,554	$	2,241	$	92,534	$	105,329	$	289,088	$	394,417	n/a		n/a

^(a) Installment loans 90 days or more past due and accruing include $2.5 million of loans guaranteed by the U.S. government as of September 30, 2014.

^(b) Excludes loss share receivable of $30.7 million as of September 30, 2014.

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

27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2013
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	8,941	$	994	$	10,622	$	20,557	$	4,119,010	$	4,139,567	$	151	$	11,323
CRE	4,507		2,400		9,688		16,595		2,153,192		2,169,787		460		14,229
Construction	351		21		66		438		338,487		338,925		—		122
Leases	902		—		—		902		238,649		239,551		—		—
Consumer
Installment	15,433		4,050		4,462		23,945		1,703,980		1,727,925		3,735		3,681
Home Equity Lines	1,864		918		965		3,747		916,319		920,066		418		1,819
Credit Cards	729		471		735		1,935		146,378		148,313		404		558
Residential Mortgages	19,858		2,072		9,350		31,280		497,973		529,253		6,008		10,471
Total	$	52,585	$	10,926	$	35,888	$	99,399	$	10,113,988	$	10,213,387	$	11,176	$	42,203
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	$	1,295	$	862	$	3,744	$	5,901	$	788,178	$	794,079	$	40	$	795
CRE	5,603		5,281		26,366		37,250		881,395		918,645		403		651
Construction	2,675		—		—		2,675		10,571		13,246		—		—
Consumer
Installment	14,528		4,076		3,354		21,958		982,611		1,004,569		2,263		679
Home Equity Lines	4,774		1,933		3,606		10,313		284,111		294,424		1,039		1,300
Residential Mortgages	3,918		1,426		8,063		13,407		457,245		470,652		403		582
Total	$	32,793	$	13,578	$	45,133	$	91,504	$	3,404,111	$	3,495,615	$	4,148	$	4,007
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	$	836	$	1,489	$	12,957	$	15,282	$	60,955	$	76,237	n/a		n/a
CRE	2,855		3,443		103,077		109,375		164,219		273,594		n/a		n/a
Construction	2,191		1,917		20,388		24,496		1,533		26,029		n/a		n/a
Consumer
Installment	33		—		—		33		6,130		6,163		n/a		n/a
Home Equity Lines	544		1,467		1,651		3,662		93,780		97,442		n/a		n/a
Residential Mortgages	7,463		1,565		5,165		14,193		36,485		50,678		n/a		n/a
Total	$	13,922	$	9,881	$	143,238	$	167,041	$	363,102	$	530,143	n/a		n/a

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

(b) Excludes loss share receivable of $61.8 million as of December 31, 2013.

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

28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2013
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	3,571	$	3,889	$	4,931	$	12,391	$	3,851,704	$	3,864,095	$	201	$	5,234
CRE	2,794		1,414		8,976		13,184		2,214,228		2,227,412		1,047		13,821
Construction	—		—		24		24		328,838		328,862		—		85
Leases	726		—		—		726		199,181		199,907		—		—
Consumer
Installment	9,825		3,392		5,378		18,595		1,628,500		1,647,095		4,506		3,894
Home Equity Lines	1,094		498		1,118		2,710		886,662		889,372		500		2,038
Credit Cards	781		434		700		1,915		143,198		145,113		365		422
Residential Mortgages	13,487		3,771		9,344		26,602		460,681		487,283		5,833		10,094
Total	$	32,278	$	13,398	$	30,471	$	76,147	$	9,712,992	$	9,789,139	$	12,452	$	35,588
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	$	2,107	$	331	$	2,325	$	4,763	$	972,898	$	977,661	$	—	$	2,029
CRE	3,068		2,816		25,268		31,152		936,751		967,903		—		—
Construction	—		—		—		—		18,182		18,182		—		—
Consumer
Installment	10,883		2,866		1,446		15,195		1,065,103		1,080,298		—		954
Home Equity Lines	3,779		982		3,522		8,283		298,500		306,783		—		2,184
Residential Mortgages	18,347		3,204		10,724		32,275		434,319		466,594		2,719		737
Total	$	38,184	$	10,199	$	43,285	$	91,668	$	3,725,753	$	3,817,421	$	2,719	$	5,904
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	$	3,729	$	730	$	12,493	$	16,952	$	66,287	$	83,239	n/a		n/a
CRE	1,299		5,672		117,839		124,810		184,087		308,897		n/a		n/a
Construction	943		—		25,996		26,939		3,150		30,089		n/a		n/a
Consumer
Installment	57		4		—		61		6,300		6,361		n/a		n/a
Home Equity Lines	1,532		22		1,781		3,335		99,574		102,909		n/a		n/a
Residential Mortgages	8,333		661		5,966		14,960		37,835		52,795		n/a		n/a
Total	$	15,893	$	7,089	$	164,075	$	187,057	$	397,233	$	584,290	n/a		n/a

^(a) Installment loans 90 days or more past due and accruing include $2.9 million of loans guaranteed by the U.S. government as of September 30, 2013.

^(b) Excludes loss share receivable of $70.0 million as of September 30, 2013.

^(c) Acquired and covered impaired loans were not classified as nonperforming assets at September 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.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

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

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

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

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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

As of September 30, 2014
(In thousands)
	Originated Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	42,653	$	695	$	—	$	8,929	$	52,277
Grade 2	214,307		3,523		—		12,525		230,355
Grade 3	1,164,149		285,652		36,953		58,157		1,544,911
Grade 4	3,458,074		1,761,138		420,721		258,880		5,898,813
Grade 5	119,252		29,410		9,359		1,233		159,254
Grade 6	40,885		39,316		79		212		80,492
Grade 7	—		—		—		—		—
Total	$	5,039,320	$	2,119,734	$	467,112	$	339,936	$	7,966,102
	Acquired Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	—		—		—		—		—
Grade 3	14,464		26,216		—		—		40,680
Grade 4	492,667		592,969		10,260		—		1,095,896
Grade 5	19,672		44,570		—		—		64,242
Grade 6	24,686		46,740		—		—		71,426
Grade 7	—		—		—		—		—
Total	$	551,489	$	710,495	$	10,260	$	—	$	1,272,244
	Covered Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,373		—		—		—		1,373
Grade 3	—		—		—		—		—
Grade 4	40,902		101,360		686		—		142,948
Grade 5	1,245		3,908		—		—		5,153
Grade 6	12,556		87,478		12,659		—		112,693
Grade 7	—		—		152		—		152
Total	$	56,076	$	192,746	$	13,497	$	—	$	262,319

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2013
(In thousands)
	Originated Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	34,909	$	241	$	—	$	9,271	$	44,421
Grade 2	108,709		3,730		—		2,900		115,339
Grade 3	802,624		315,150		25,632		54,446		1,197,852
Grade 4	3,083,458		1,759,383		306,795		167,022		5,316,658
Grade 5	71,857		34,969		267		5,750		112,843
Grade 6	38,010		56,314		6,231		162		100,717
Grade 7	—		—		—		—		—
Total	$	4,139,567	$	2,169,787	$	338,925	$	239,551	$	6,887,830
	Acquired Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,741		703		—		—		2,444
Grade 3	79,634		29,224		—		—		108,858
Grade 4	643,495		722,307		13,246		—		1,379,048
Grade 5	46,807		93,499		—		—		140,306
Grade 6	22,402		72,912		—		—		95,314
Grade 7	—		—		—		—		—
Total	$	794,079	$	918,645	$	13,246	$	—	$	1,725,970
	Covered Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	968		—		—		—		968
Grade 3	—		—		—		—		—
Grade 4	41,115		113,863		601		—		155,579
Grade 5	427		6,219		—		—		6,646
Grade 6	31,621		153,318		23,208		—		208,147
Grade 7	2,106		194		2,220		—		4,520
Total	$	76,237	$	273,594	$	26,029	$	—	$	375,860

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2013
(In thousands)
	Originated Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	32,144	$	1,216	$	—	$	9,932	$	43,292
Grade 2	82,906		3,711		—		3,173		89,790
Grade 3	867,186		368,918		27,041		29,631		1,292,776
Grade 4	2,796,101		1,770,768		300,154		152,778		5,019,801
Grade 5	48,912		30,502		323		3,325		83,062
Grade 6	36,846		52,297		1,344		1,068		91,555
Grade 7	—		—		—		—		—
Total	$	3,864,095	$	2,227,412	$	328,862	$	199,907	$	6,620,276
Acquired Loans
	Acquired Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	96		—		—		—		96
Grade 3	27,827		29,123		—		—		56,950
Grade 4	849,858		744,362		18,182		—		1,612,402
Grade 5	55,558		102,256		—		—		157,814
Grade 6	44,322		92,162		—		—		136,484
Grade 7	—		—		—		—		—
Total	$	977,661	$	967,903	$	18,182	$	—	$	1,963,746
	Covered Commercial Loans
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	996		—		—		—		996
Grade 3	—		—		—		—		—
Grade 4	45,557		116,056		601		—		162,214
Grade 5	624		15,364		943		—		16,931
Grade 6	33,957		176,286		26,401		—		236,644
Grade 7	2,105		1,191		2,144		—		5,440
Total	$	83,239	$	308,897	$	30,089	$	—	$	422,225

4.    Allowance for Loan Losses

The Corporation's Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary bank, participating in approval of its loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing loan workouts. The Corporation's objective is to minimize losses from its commercial lending activities and to maintain consumer losses at acceptable levels that are stable and consistent with growth and profitability objectives.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Allowance for Originated Loan Losses

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

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

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

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

As of September 30, 2014
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	43,256		$	8,730		$	1,323		$	1,028		$	12,243		$	13,903		$	7,328		$	4,139		$	91,950
Charge-offs		(3,569		)	(570		)	—			—			(5,041		)	(1,361		)	(778		)	(91		)	(11,410		)
Recoveries		1,262			43			5			2			2,944			708			403			114			5,481
Provision for loan losses		(3,824		)	243			170			(294		)	3,514			4,648			559			(154		)	4,862
Allowance for originated loan losses, ending balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Nine Months Ended
Allowance for originated loan losses, beginning balance		$	42,981		$	12,265		$	2,810		$	1,081		$	11,935		$	12,900		$	7,740		$	4,772		$	96,484
Charge-offs		(9,203		)	(3,345		)	—			—			(14,739		)	(3,403		)	(3,544		)	(1,484		)	(35,718		)
Recoveries		2,681			77			35			374			8,735			2,227			1,260			219			15,608
Provision for loan losses		666			(551		)	(1,347		)	(719		)	7,729			6,174			2,056			501			14,509
Allowance for originated loan losses, ending balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	1,399		$	1,620		$	—		$	—		$	1,086		$	190		$	322		$	1,435		$	6,052
	Collectively evaluated for impairment	35,726			6,826			1,498			736			12,574			17,708			7,190			2,573			84,831
Total ending allowance for originated loan losses balance		$	37,125		$	8,446		$	1,498		$	736		$	13,660		$	17,898		$	7,512		$	4,008		$	90,883
Originated loans:
	Originated loans individually evaluated for impairment	$	11,155		$	22,597		$	—		$	—		$	23,575		$	7,624		$	912		$	26,108		$	91,971
	Originated loans collectively evaluated for impairment	5,028,165			2,097,137			467,112			339,936			2,253,958			1,054,389			159,201			579,890			11,979,788
Total ending originated loan balance		$	5,039,320		$	2,119,734		$	467,112		$	339,936		$	2,277,533		$	1,062,013		$	160,113		$	605,998		$	12,071,759

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2013
(In thousands)
Originated Loans		C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Three Months Ended
Allowance for originated loan losses, beginning balance		$	45,167		$	16,823		$	2,044		$	909		$	8,725		$	13,266		$	7,288		$	4,423		$	98,645
Charge-offs		(1,011		)	(211		)	—			—			(3,582		)	(1,843		)	(1,367		)	(501		)	(8,515		)
Recoveries		1,162			168			394			11			2,624			802			438			39			5,638
Provision for loan losses		(2,140		)	(1,632		)	267			99			2,710			662			1,147			1,410			2,523
Allowance for originated loan losses, ending balance		$	43,178		$	15,148		$	2,705		$	1,019		$	10,477		$	12,887		$	7,506		$	5,371		$	98,291
Nine 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		(5,114		)	(1,014		)	(516		)	(1,237		)	(11,788		)	(5,177		)	(4,229		)	(1,185		)	(30,260		)
Recoveries		5,745			503			483			100			7,859			1,884			1,420			133			18,127
Provision for loan losses		6,338			(4,467		)	(1,083		)	1,517			3,252			2,456			2,931			538			11,482
Allowance for originated loan losses, ending balance		$	43,178		$	15,148		$	2,705		$	1,019		$	10,477		$	12,887		$	7,506		$	5,371		$	98,291
Ending allowance for originated loan losses balance attributable to loans:
	Individually evaluated for impairment	$	1,336		$	488		$	—		$	—		$	552		$	197		$	261		$	1,302		$	4,136
	Collectively evaluated for impairment	41,842			14,660			2,705			1,019			9,925			12,690			7,245			4,069			94,155
Total ending allowance for originated loan losses balance		$	43,178		$	15,148		$	2,705		$	1,019		$	10,477		$	12,887		$	7,506		$	5,371		$	98,291
Originated loans:
	Originated loans individually evaluated for impairment	$	7,476		$	19,755		$	958		$	—		$	30,608		$	6,787		$	1,253		$	23,064		$	89,901
	Originated loans collectively evaluated for impairment	3,856,619			2,207,657			327,904			199,907			1,616,487			882,585			143,860			464,219			9,699,238
Total ending originated loan balance		$	3,864,095		$	2,227,412		$	328,862		$	199,907		$	1,647,095		$	889,372		$	145,113		$	487,283		$	9,789,139

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

As of December 31, 2013
	(In thousands)
	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	$	3,235	$	229	$	—	$	—	$	1,014	$	223	$	312	$	1,133	$	6,146
	Collectively evaluated for impairment	39,746		12,036		2,810		1,081		10,921		12,677		7,428		3,639		90,338
Total ending allowance for originated loan losses balance		$	42,981	$	12,265	$	2,810	$	1,081	$	11,935	$	12,900	$	7,740	$	4,772	$	96,484
Originated loans:
	Loans individually evaluated for impairment	$	8,053	$	20,616	$	906	$	—	$	27,285	$	6,726	$	1,112	$	23,066	$	87,764
	Loans collectively evaluated for impairment	4,131,514		2,149,171		338,019		239,551		1,700,640		913,340		147,201		506,187		10,125,623
Total ending originated loan balance		$	4,139,567	$	2,169,787	$	338,925	$	239,551	$	1,727,925	$	920,066	$	148,313	$	529,253	$	10,213,387

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Allowance for Acquired Loan Losses

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

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the acquired ALL. During the three and nine months ended September 30, 2014, provision for loan losses, equal to net charge-offs, of $3.2 million and $12.6 million, respectively, were recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due.

The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized in the current period by an increase in the acquired ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established acquired ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. See Note 3 (Loans) for further information on changes in accretable yield.

The following table presents activity in the allowance for acquired impaired loan losses for the three and nine months ended September 30, 2014. There was no allowance for acquired impaired loans as of September 30, 2013.

Allowance for Acquired Impaired Loan Losses	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2014		2014
Balance at beginning of the period	$	4,977	$	741
Charge-offs	—		—
Recoveries	—		—
Provision for loan losses	1,229		5,465
Balance at end of the period	$	6,206	$	6,206

Allowance for Covered Loan Losses

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

revolving privileges, which are outside the scope of impaired loan accounting, and, therefore, are accounted for as covered nonimpaired loans. As of September 30, 2014, the computed ALL was less than the remaining fair value discount, therefore, no ALL for covered nonimpaired loans was recorded.

The following table presents activity in the allowance for covered impaired loan losses for the three and nine months ended September 30, 2014 and 2013:

Allowance for Covered Impaired Loan Losses		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)		2014			2013			2014			2013
Balance at beginning of the period		$	45,109		$	49,069		$	44,027		$	43,255
	Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements	2,827			2,855			10,255			19,009
	Net (benefit)/recapture attributable to FDIC loss share agreements	(2,908		)	(1,032		)	(3,835		)	(8,890		)
Net provision/(recapture) for loan losses		(81		)	1,823			6,420			10,119
Increase (decrease) in loss share receivable		2,908			1,032			3,835			8,890
Loans charged-off		(4,948		)	(6,380		)	(11,294		)	(16,720		)
Balance at end of the period		$	42,988		$	45,544		$	42,988		$	45,544

During the three months ended September 30, 2014, $2.8 million of losses on covered impaired loans were recognized with an offsetting increase of $2.9 million in the loss share receivable. This net recapture of $0.1 million compares to a net provision of $1.8 million in the three months ended September 30, 2013. During the nine months ended September 30, 2014, $10.3 million of provision on covered impaired loans was recognized with an offsetting increase of $3.8 million in the loss share receivable. This net provision of $6.4 million compares to $10.1 million in the nine months ended September 30, 2013.

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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.

Interest income recognized on impaired loans was $0.2 million and $0.4 million for the three months and nine months ended September 30, 2014, respectively, compared to $0.1 million and $0.3 million for the three months and nine months ended September 30, 2013, respectively. Interest income which would have been earned in accordance with the original terms was $0.7 million and $2.0 million for the three months and nine months ended September 30, 2014, respectively, compared to $0.6 million and $2.4 million for the three months and nine months ended September 30, 2013, respectively.

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

As of September 30, 2014
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	8,411	$	15,740	$	—	$	12,484
	CRE	16,576		22,625		—		17,035
	Construction	—		—		—		—
Consumer
	Installment	3,899		4,001		—		3,959
	Home equity line	2,015		2,045		—		2,073
	Credit card	27		27		—		44
	Residential mortgages	12,576		15,552		—		12,720
Subtotal		43,504		59,990		—		48,315
Impaired loans with a related allowance
Commercial
	C&I	2,744		2,798		1,399		2,896
	CRE	6,021		6,022		1,620		3,381
	Construction	—		—		—		—
Consumer
	Installment	19,676		20,314		1,086		20,039
	Home equity line	5,609		5,829		190		5,779
	Credit card	885		885		322		981
	Residential mortgages	13,532		13,641		1,435		13,566
Subtotal		48,467		49,489		6,052		46,642
	Total impaired loans	$	91,971	$	109,479	$	6,052	$	94,957

Note 1: These tables exclude loans fully charged off.

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2013
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	2,503	$	6,679	$	—	$	7,256
	CRE	17,871		23,709		—		18,639
	Construction	906		1,179		—		1,035
Consumer
	Installment	2,813		3,978		—		3,338
	Home equity line	1,018		1,347		—		1,079
	Credit card	49		49		—		91
	Residential mortgages	10,250		12,778		—		10,258
Subtotal		35,410		49,719		—		41,696
Impaired loans with a related allowance
Commercial
	C&I	5,551		7,428		3,235		5,009
	CRE	2,744		2,870		229		2,836
	Construction	—		—		—		—
Consumer
	Installment	24,472		24,558		1,014		24,985
	Home equity line	5,707		5,707		223		5,874
	Credit card	1,064		1,064		312		1,238
	Residential mortgages	12,816		12,898		1,133		12,064
Subtotal		52,354		54,525		6,146		52,006
	Total impaired loans	$	87,764	$	104,244	$	6,146	$	93,702

Note 1: These tables exclude loans fully charged off.

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2013
Originated Loans				Unpaid				Average
		Recorded		Principal		Related		Recorded
(In thousands)		Investment		Balance		Allowance		Investment
Impaired loans with no related allowance
Commercial
	C&I	$	3,826	$	7,887	$	—	$	11,842
	CRE	15,836		21,921		—		18,884
	Construction	958		1,237		—		1,851
Consumer
	Installment	3,051		4,344		—		3,521
	Home equity line	1,046		1,386		—		1,107
	Credit card	48		48		—		74
	Residential mortgages	10,363		12,899		—		10,122
Subtotal		35,128		49,722		—		47,401
Impaired loans with a related allowance
Commercial
	C&I	3,650		5,526		1,336		3,829
	CRE	3,920		4,251		488		4,126
	Construction	—		—		—		—
Consumer
	Installment	25,528		25,616		552		26,172
	Home equity line	5,869		5,869		197		6,017
	Credit card	1,205		1,205		261		1,352
	Residential mortgages	12,702		12,784		1,302		11,866
Subtotal		52,874		55,251		4,136		53,362
	Total impaired loans	$	88,002	$	104,973	$	4,136	$	100,763

Note 1: These tables exclude loans fully charged off.

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

Troubled Debt Restructurings

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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 September 30, 2014, December 31, 2013, and September 30, 2013.

			As of September 30, 2014
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	39	$	2,673	$	10,032
		CRE	63	18,087		22,905
		Construction	31	—		—
		Total originated commercial	133	20,760		32,937
	Consumer
		Installment	1,238	23,575		24,315
		Home equity lines	275	7,624		7,874
		Credit card	244	912		912
		Residential mortgages	325	26,108		29,193
		Total originated consumer	2,082	58,219		62,294
Total originated loans			2,215	$	78,979	$	95,231
Acquired loans
	Commercial
		C&I	1	$	3	$	3
		CRE	2	2,336		2,336
		Total acquired commercial	3	2,339		2,339
	Consumer
		Installment	37	960		1,021
		Home equity lines	121	5,995		6,041
		Residential mortgages	24	1,610		1,836
		Total acquired consumer	182	8,565		8,898
Total acquired loans			185	$	10,904	$	11,237
Covered loans
	Commercial
		C&I	6	$	177	$	1,620
		CRE	24	35,904		51,067
		Construction	10	650		10,899
		Total covered commercial	40	36,731		63,586
	Consumer
		Home equity lines	62	8,458		8,458
		Residential mortgages	2	336		336
		Total covered consumer	64	8,794		8,794
Total covered loans			104	$	45,525	$	72,380
Total loans
	Commercial
		C&I	46	$	2,853	$	11,655
		CRE	89	56,327		76,308
		Construction	41	650		10,899
		Total commercial	176	59,830		98,862
	Consumer
		Installment	1,275	24,535		25,336
		Home equity lines	458	22,077		22,373
		Credit card	244	912		912
		Residential mortgages	351	28,054		31,365
		Total consumer	2,328	75,578		79,986
Total loans			2,504	$	135,408	$	178,848

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

44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

			As of December 31, 2013
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	35	$	4,449	$	7,660
		CRE	52	15,932		20,569
		Construction	30	905		1,179
		Total originated commercial	117	21,286		29,408
	Consumer
		Installment	1,553	27,285		28,536
		Home equity lines	231	6,725		7,054
		Credit card	307	1,113		1,113
		Residential mortgages	301	23,067		25,676
		Total originated consumer	2,392	58,190		62,379
Total originated loans			2,509	$	79,476	$	91,787
Acquired loans
	Commercial
		C&I	1	6		5
		CRE	1	1,730		1,730
		Total acquired commercial	2	1,736		1,735
	Consumer
		Installment	12	505		542
		Home equity lines	8	245		270
		Residential mortgages	7	431		502
		Total acquired consumer	27	1,181		1,314
Total acquired loans			29	$	2,917	$	3,049
Covered loans
	Commercial
		C&I	4	$	1,104	$	2,331
		CRE	24	39,995		57,008
		Construction	10	4,144		24,547
		Total covered commercial	38	45,243		83,886
	Consumer
		Home equity lines	47	5,401		5,421
		Residential Mortgages	1	150		150
		Total covered consumer	48	5,551		5,571
Total covered loans			86	$	50,794	$	89,457
Total loans
	Commercial
		C&I	40	$	5,559	$	9,996
		CRE	77	57,657		79,307
		Construction	40	5,049		25,726
		Total commercial	157	68,265		115,029
	Consumer
		Installment	1,565	27,790		29,078
		Home equity lines	286	12,371		12,745
		Credit card	307	1,113		1,113
		Residential mortgages	309	23,648		26,328
		Total consumer	2,467	64,922		69,264
Total loans			2,624	$	133,187	$	184,293

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

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

			As of September 30, 2013
(Dollars in thousands)			Number of Loans	Recorded Investment		Unpaid Principal Balance
Originated loans
	Commercial
		C&I	35	$	5,455	$	9,533
		CRE	49	15,508		19,848
		Construction	31	958		1,237
		Total originated commercial	115	21,921		30,618
	Consumer
		Installment	1,655	28,578		29,960
		Home equity lines	240	6,916		7,255
		Credit card	339	1,253		1,253
		Residential mortgages	292	23,065		25,683
		Total originated consumer	2,526	59,812		64,151
Total originated loans			2,641	$	81,733	$	94,769
Acquired loans
	Commercial
		C&I	1	6		6
		Total acquired commercial	1	6		6
	Consumer
		Home equity lines	3	260		307
		Total acquired consumer	3	260		307
Total acquired loans			4	$	266	$	313
Covered loans
	Commercial
		C&I	4	$	1,537	$	2,377
		CRE	24	43,024		58,252
		Construction	10	4,040		23,796
		Total covered commercial	38	48,601		84,425
	Consumer
		Home equity lines	48	5,753		5,777
		Residential mortgages	1	152		151
		Total covered consumer	49	5,905		5,928
Total covered loans			87	$	54,506	$	90,353
Total loans
	Commercial
		C&I	40	$	6,998	$	11,916
		CRE	73	58,532		78,100
		Construction	41	4,998		25,033
		Total commercial	154	70,528		115,049
	Consumer
		Installment	1,655	28,578		29,960
		Home equity lines	291	12,929		13,339
		Credit card	339	1,253		1,253
		Residential mortgages	293	23,217		25,834
		Total consumer	2,578	65,977		70,386
Total loans			2,732	$	136,505	$	185,435

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 three and nine months ended September 30, 2014 and 2013 were not materially different. Post-modification balances may include capitalization of unpaid accrued interest and fees associated with the

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

modification as well as forgiveness of principal. Loans modified as TDRs during the three and nine months ended September 30, 2014 and 2013 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 three and nine months ended September 30, 2014 and 2013 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 September 30, 2014, the Corporation had $0.5 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

As of September 30, 2014
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	594	$	—	$	594	$	116	$	1,963	$	2,079	$	2,673	$	653
CRE	14,350		—		14,350		1,562		2,175		3,737		18,087		70
Construction	—		—		—		—		—		—		—		—
Total originated commercial	14,944		—		14,944		1,678		4,138		5,816		20,760		723
Consumer
Installment	21,046		533		21,579		1,847		149		1,996		23,575		1,086
Home equity lines	6,479		180		6,659		915		50		965		7,624		190
Credit card	800		97		897		—		15		15		912		322
Residential mortgages	14,228		3,384		17,612		5,113		3,383		8,496		26,108		1,435
Total originated consumer	42,553		4,194		46,747		7,875		3,597		11,472		58,219		3,033
Total originated TDRs	$	57,497	$	4,194	$	61,691	$	9,553	$	7,735	$	17,288	$	78,979	$	3,756
Acquired loans
Commercial
C&I	—		—		—		3		—		3		3		3
CRE	1,627		—		1,627		709		—		709		2,336		148
Total acquired commercial	1,627		—		1,627		712		—		712		2,339		151
Consumer
Installment	842		75		917		25		18		43		960		137
Home equity lines	5,764		89		5,853		142		—		142		5,995		—
Residential mortgages	824		—		824		737		49		786		1,610		14
Total acquired consumer	7,430		164		7,594		904		67		971		8,565		151
Total acquired TDRs	$	9,057	$	164	$	9,221	$	1,616	$	67	$	1,683	$	10,904	$	302
Covered loans
Commercial
C&I	$	—	$	177	$	177	$	—	$	—	$	—	$	177	$	—
CRE	5,729		30,175		35,904		—		—		—		35,904		2,949
Construction	650		—		650		—		—		—		650		55
Total covered commercial	6,379		30,352		36,731		—		—		—		36,731		3,004
Consumer
Home equity lines	7,498		624		8,122		336		—		336		8,458		—
Residential mortgages	336		—		336		—		—		—		336		26
Total covered consumer	7,834		624		8,458		336		—		336		8,794		26
Total covered TDRs	$	14,213	$	30,976	$	45,189	$	336	$	—	$	336	$	45,525	$	3,030
Total loans
Commercial
C&I	$	594	$	177	$	771	$	119	$	1,963	$	2,082	$	2,853	$	656
CRE	21,706		30,175		51,881		2,271		2,175		4,446		56,327		3,167
Construction	650		—		650		—		—		—		650		55
Total commercial	22,950		30,352		53,302		2,390		4,138		6,528		59,830		3,878
Consumer
Installment	21,888		608		22,496		1,872		167		2,039		24,535		1,223
Home equity lines	19,741		893		20,634		1,393		50		1,443		22,077		190
Credit card	800		97		897		—		15		15		912		322
Residential mortgages	15,388		3,384		18,772		5,850		3,432		9,282		28,054		1,475
Total consumer	57,817		4,982		62,799		9,115		3,664		12,779		75,578		3,210
Total TDRs	$	80,767	$	35,334	$	116,101	$	11,505	$	7,802	$	19,307	$	135,408	$	7,088

48

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of December 31, 2013
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	1,438	$	879	$	2,317	$	177	$	1,955	$	2,132	$	4,449	$	665
CRE	10,442		382		10,824		1,208		3,900		5,108		15,932		32
Construction	848		—		848		—		57		57		905		—
Total originated commercial	12,728		1,261		13,989		1,385		5,912		7,297		21,286		697
Consumer
Installment	23,342		1,238		24,580		2,483		222		2,705		27,285		1,014
Home equity lines	5,313		194		5,507		1,206		12		1,218		6,725		223
Credit card	1,046		66		1,112		—		1		1		1,113		312
Residential mortgages	12,276		3,327		15,603		4,360		3,104		7,464		23,067		1,133
Total originated consumer	41,977		4,825		46,802		8,049		3,339		11,388		58,190		2,682
Total originated TDRs	$	54,705	$	6,086	$	60,791	$	9,434	$	9,251	$	18,685	$	79,476	$	3,379
Acquired loans
Commercial
C&I	$	—	$	—	$	—	$	6	$	—	$	6	$	6	$	—
CRE	1,730		—		1,730		—		—		—		1,730		—
Total acquired commercial	1,730		—		1,730		6		—		6		1,736		—
Consumer
Installment	369		136		505		—		—		—		505		—
Home equity lines	182		—		182		63		—		63		245		—
Residential mortgages	245		—		245		32		154		186		431		—
Total acquired consumer	796		136		932		95		154		249		1,181		—
Total acquired TDRs	$	2,526	$	136	$	2,662	$	101	$	154	$	255	$	2,917	$	—
Covered loans
Commercial
C&I	$	362	$	742	$	1,104	$	—	$	—	$	—	$	1,104	$	—
CRE	5,259		34,736		39,995		—		—		—		39,995		3,022
Construction	698		3,446		4,144		—		—		—		4,144		800
Total covered commercial	6,319		38,924		45,243		—		—		—		45,243		3,822
Consumer
Home equity lines	5,377		24		5,401		—		—		—		5,401		—
Residential mortgages	150		—		150		—		—		—		150		—
Total covered consumer	5,527		24		5,551		—		—		—		5,551		—
Total covered TDRs	$	11,846	$	38,948	$	50,794	$	—	$	—	$	—	$	50,794	$	3,822
Commercial
C&I	$	1,800	$	1,621	$	3,421	$	183	$	1,955	$	2,138	$	5,559	$	665
CRE	17,431		35,118		52,549		1,208		3,900		5,108		57,657		3,054
Construction	1,546		3,446		4,992		—		57		57		5,049		800
Total commercial	20,777		40,185		60,962		1,391		5,912		7,303		68,265		4,519
Consumer
Installment	23,711		1,374		25,085		2,483		222		2,705		27,790		1,014
Home equity lines	10,872		218		11,090		1,269		12		1,281		12,371		223
Credit card	1,046		66		1,112		—		1		1		1,113		312
Residential mortgages	12,671		3,327		15,998		4,392		3,258		7,650		23,648		1,133
Total consumer	48,300		4,985		53,285		8,144		3,493		11,637		64,922		2,682
Total TDRs	$	69,077	$	45,170	$	114,247	$	9,535	$	9,405	$	18,940	$	133,187	$	7,201

49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

As of September 30, 2013
	Accruing TDRs						Nonaccruing TDRs						Total		Total
(In thousands)	Current		Delinquent		Total		Current		Delinquent		Total		TDRs		Allowance
Originated loans
Commercial
C&I	$	3,249	$	180	$	3,429	$	395	$	1,631	$	2,026	$	5,455	$	736
CRE	10,333		347		10,680		1,976		2,852		4,828		15,508		294
Construction	895		—		895		63		—		63		958		—
Total originated commercial	14,477		527		15,004		2,434		4,483		6,917		21,921		1,030
Consumer
Installment	24,194		1,261		25,455		2,803		320		3,123		28,578		552
Home equity lines	5,544		112		5,656		1,260		—		1,260		6,916		197
Credit card	1,134		117		1,251		—		2		2		1,253		261
Residential mortgages	12,566		3,094		15,660		4,046		3,359		7,405		23,065		1,302
Total originated consumer	43,438		4,584		48,022		8,109		3,681		11,790		59,812		2,312
Total originated TDRs	$	57,915	$	5,111	$	63,026	$	10,543	$	8,164	$	18,707	$	81,733	$	3,342
Acquired loans
Commercial
C&I	$	—	$	—	$	—	$	—	$	6	$	6	$	6	$	—
Total acquired commercial	—		—		—		—		6		6		6		—
Consumer
Home equity lines	196		—		196		—		64		64		260		—
Total acquired consumer	196		—		196		—		64		64		260		—
Total acquired TDRs	$	196	$	—	$	196	$	—	$	70	$	70	$	266	$	—
Covered loans
Commercial
C&I	$	795	$	742	$	1,537	$	—	$	—	$	—	$	1,537	$	446
CRE	5,479		37,545		43,024		—		—		—		43,024		2,832
Construction	925		3,115		4,040		—		—		—		4,040		1,001
Total covered commercial	7,199		41,402		48,601		—		—		—		48,601		4,279
Consumer
Home equity lines	5,256		497		5,753		—		—		—		5,753		—
Residential mortgages	152		—		152		—		—		—		152		—
Total covered consumer	5,408		497		5,905		—		—		—		5,905		—
Total covered TDRs	$	12,607	$	41,899	$	54,506	$	—	$	—	$	—	$	54,506	$	4,279
Total loans
Commercial
C&I	$	4,044	$	922	$	4,966	$	395	$	1,637	$	2,032	$	6,998	$	1,182
CRE	15,812		37,892		53,704		1,976		2,852		4,828		58,532		3,126
Construction	1,820		3,115		4,935		63		—		63		4,998		1,001
Total commercial	21,676		41,929		63,605		2,434		4,489		6,923		70,528		5,309
Consumer
Installment	24,194		1,261		25,455		2,803		320		3,123		28,578		552
Home equity lines	10,996		609		11,605		1,260		64		1,324		12,929		197
Credit card	1,134		117		1,251		—		2		2		1,253		261
Residential mortgages	12,718		3,094		15,812		4,046		3,359		7,405		23,217		1,302
Total consumer	49,042		5,081		54,123		8,109		3,745		11,854		65,977		2,312
Total TDRs	$	70,718	$	47,010	$	117,728	$	10,543	$	8,234	$	18,777	$	136,505	$	7,621

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

50

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

possible further impairment. The ALL may be increased, adjustments may be made in the allocation of the ALL, or partial charge-offs may be taken to further write-down the carrying value of the loan.

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

51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 September 30, 2014, as well as the recorded investment in these restructured loans as of September 30, 2014.

	As of September 30, 2014
(Dollars in thousands)	Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	3	$	115
CRE	1	328
Construction	—	—
Total originated commercial	4	443
Consumer
Installment	4	22
Home equity lines	—	—
Credit card	—	—
Residential mortgages	—	—
Total originated consumer	4	$	22
Covered loans
Consumer
Installment	—	—
Home equity lines	—	—
Residential mortgages	—	—
Total covered consumer	—	$	—
Acquired loans
Consumer
Installment	1	77
Home equity lines	1	61
Residential mortgages	—	—
Total acquired consumer	2	$	138
Total loans
Commercial
C&I	3	$	115
CRE	1	328
Construction	—	—
Total commercial	4	443
Consumer
Installment	5	99
Home equity lines	1	61
Credit card	—	—
Residential mortgages	—	—
Total consumer	6	160
Total	10	$	603

52

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

	As of September 30, 2013
(Dollars in thousands)	Number of Loans	Recorded Investment
Originated loans
Commercial
C&I	—	$	—
CRE	1	920
Construction	—	—
Total originated commercial	1	920
Consumer
Installment	1	3
Home equity lines	1	24
Credit card	9	74
Residential mortgages	3	1,858
Total originated consumer	14	$	1,959
Covered loans
Consumer
Installment	—	—
Home equity lines	—	—
Residential mortgages	—	—
Total covered consumer	—	$	—
Acquired loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total acquired commercial	—	—
Consumer
Installment	—	—
Home equity lines	—	—
Residential mortgages	—	—
Total acquired consumer	—	$	—
Total loans
Commercial
C&I	—	$	—
CRE	1	920
Construction	—	—
Total commercial	1	920
Consumer
Installment	1	3
Home equity lines	1	24
Credit card	9	74
Residential mortgages	3	1,858
Total consumer	14	1,959
Total	15	$	2,879

54

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

5.     Goodwill and Other Intangible Assets

Goodwill

Goodwill totaled $741.7 million as of September 30, 2014, December 31, 2013, and September 30, 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, 2013 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.

Other Intangible Assets

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

	September 30, 2014
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (a)	$	82,323	$	(17,712	)	$	64,611
Lease intangible	238		(167		)	71
Trust Relationships (b)	14,000		(4,729		)	9,271
	$	96,561	(22,608		)	$	73,953
	December 31, 2013
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (a)	$	87,533	$	(16,065	)	$	71,468
Non-compete covenant	102		(102		)	—
Lease intangible	238		(140		)	98
Trust Relationships (b)	14,000		(2,811		)	11,189
	$	101,873	$	(19,118	)	$	82,755
	September 30, 2013
	Gross Carrying		Accumulated			Net Carrying
(In thousands)	Amount		Amortization			Amount
Core deposit intangibles (a)	$	87,533	$	(14,325	)	$	73,208
Non-compete covenant	102		(96		)	6
Lease intangible	238		(131		)	107
Trust relationships (b)	14,000		(1,874		)	12,126
	$	101,873	$	(16,426	)	$	85,447

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

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

Amortization expense for intangible assets was $8.8 million in the nine months endedSeptember 30, 2014, compared to $5.7 million in the nine months endedSeptember 30, 2013. Estimated amortization expense for each of the next five years is as follows: 2014 - $2.9 million; 2015 - $10.4 million; 2016 - $9.2 million; 2017 - $8.2 million; and 2018 - $7.3 million.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

6.     Shareholders' Equity

Common Stock Warrant

The Corporation has an outstanding warrant issued to the U.S. Treasury to initially purchase 2,408,203 shares of FirstMerit Common Stock. Due to a dividend protection clause, which reduces the exercise price on a penny for penny basis for any dividend paid along with a corresponding increase in the amount of shares available to purchase, the U.S. Treasury can purchase up to 2,538,596 shares at an adjusted exercise price of $17.73 as of September 30,2014.

Preferred Stock

The Corporation has 7,000,000 shares of authorized Preferred Stock and has designated 115,000 shares of its Preferred Stock as 5.875% Non-Cumulative Perpetual Preferred Stock, Series A. On February 4, 2013, the Corporation issued 100,000 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 4^th day of February, May, August and November.

Earnings Per Share

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

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2014		2013		2014		2013
Basic EPS:
Net income	$	63,898	$	40,715	$	176,872	$	126,510
Less:
Cash dividends on 5.875% non-cumulative perpetual series A, Preferred Stock	1,469		1,469		4,407		3,868
Income allocated to participating securities	519		310		1,433		1,102
Net income attributable to common shareholders	$	61,910	$	38,936	$	171,032	$	121,540
Weighted average Common Stock outstanding used in basic EPS	165,389		165,044		165,263		144,402
Basic net income per common share	$	0.37	$	0.24	$	1.03	$	0.84
Diluted EPS:
Income used in diluted earnings per common share calculation	$	61,910	$	38,936	$	171,032	$	121,540
Weighted average Common Stock outstanding used in basic EPS	165,389		165,044		165,263		144,402
Add: Common Stock equivalents:
Warrant and stock plans	415		830		653		2,990
Weighted average Common and Common Stock equivalent shares outstanding	165,804		165,874		165,916		147,392
Diluted net income per common share	$	0.37	$	0.23	$	1.03	$	0.82

Common Stock equivalents consist of employee stock award plans and the Common Stock warrant. These Common Stock equivalents do not enter into the calculation of diluted EPS if the impact would be anti-dilutive, that is, increase EPS or reduce a loss per share. Antidilutive potential Common Stock for the nine months endedSeptember 30,2014 and 2013 totaled 0.9 million and 1.5 million, respectively.

7.     Segment Information

Management monitors the Corporation’s results by an internal performance measurement system, which provides lines of business results and key performance measures. The profitability measurement system is based on internal financial management practices designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.

A description of each business, selected financial performance, and the methodologies used to measure financial performance are presented below.

• Commercial – The commercial line of business provides a full range of lending, depository, and related financial services to middle-market corporate, industrial, financial, core business banking, public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 functions not specifically identifiable with the three primary lines of business.

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the 2013 Form 10-K. Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. In the first quarter of 2014, Management changed the estimate regarding the funds transfer pricing crediting rate provided on non-maturity deposits, including amounts for prior periods.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.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Substantially all of the Corporation’s business is conducted in the United States of America. The following tables present a summary of financial results as of and for the three and nine months endedSeptember 30, 2014 and September 30, 2013:

																					FirstMerit
(In thousands)	Commercial						Retail				Wealth				Other						Consolidated
September 30, 2014	QTD			YTD			QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss)	$	105,191		$	317,178		$	95,710	$	283,839	$	5,119	$	14,596	$	(12,442	)	$	(32,556	)	$	193,578	$	583,057
Provision (recapture) for loan losses	(7,642		)	(7,476		)	7,627		25,149		362		713		8,845			20,596			9,192		38,982
Noninterest income	21,096			69,083			28,270		80,651		14,108		41,624		6,259			18,206			69,733		209,564
Noninterest expense	58,221			181,435			85,954		269,331		12,777		37,874		6,193			11,238			163,145		499,878
Net income (loss)	49,211			137,995			19,759		45,506		3,956		11,460		(9,028		)	(18,089		)	63,898		176,872
AVERAGES:
Assets	$	9,407,684		$	9,225,407		$	5,700,960	$	5,565,047	$	289,549	$	263,513	$	9,185,583		$	9,283,686		$	24,583,776	$	24,337,653

																						FirstMerit
(In thousands)	Commercial					Retail				Wealth						Other						Consolidated
September 30, 2013	QTD			YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
OPERATIONS:
Net interest income (loss)	$	117,476		$	300,423	$	103,046	$	248,704	$	4,286		$	12,727		$	(21,468	)	$	(49,137	)	$	203,340	$	512,717
Provision (recapture) for loan losses	(27		)	6,866		905		7,071		(736		)	(570		)	6,237			10,267			6,379		23,634
Noninterest income	21,364			60,980		30,723		88,916		13,216			34,347			5,787			13,680			71,090		197,923
Noninterest expense	57,033			151,587		96,153		235,518		14,650			38,698			42,763			79,830			210,599		505,633
Net income (loss)	53,136			131,704		23,910		61,985		2,090			5,469			(38,421		)	(72,648		)	40,715		126,510
AVERAGES:
Assets	$	8,685,333		$	8,020,824	$	5,659,553	$	4,646,817	$	266,028		$	255,538		$	9,402,680		$	7,709,479		$	24,013,594	$	20,632,658

8.     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.

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

Derivatives Designated in Hedge Relationships

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

At September 30, 2014, December 31, 2013, and September 30, 2013, 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
	September 30, 2014				December 31, 2013				September 30, 2013				September 30, 2014				December 31, 2013				September 30, 2013
(In thousands)	Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)
Interest rate swaps:
Fair value hedges	$	—	$	—	$	—	$	—	$	—	$	—	$	100,490	$	7,584	$	126,637	$	11,574	$	133,159	$	13,289

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

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

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

Derivatives Not Designated in Hedge Relationships

As of September 30, 2014, December 31, 2013, and September 30, 2013, 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
	September 30, 2014				December 31, 2013				September 30, 2013				September 30, 2014				December 31, 2013				September 30, 2013
(In thousands)	Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)
Interest rate swaps	$	1,655,371	$	40,937	$	1,622,525	$	46,577	$	1,546,228	$	51,044	$	1,655,371	$	40,937	$	1,622,531	$	46,577	$	1,546,228	$	51,044
Mortgage loan commitments	167,634		1,975		90,541		891		144,572		2,729		—		—		—		—		—		—
Forward sales contracts	—		—		40,906		384		—		—		67,528		91		—		—		68,581		1,081
Credit contracts	20,504		—		—		—		—		—		58,157		—		49,914		—		50,336		—
Foreign exchange	14,745		185		6,478		50		5,716		66		14,074		153		6,893		50		6,295		92
Equity swap	—		—		—		—		—		—		61,145		515		63,813		—		54,763		—
Total	$	1,858,254	$	43,097	$	1,760,450	$	47,902	$	1,696,516	$	53,839	$	1,856,275	$	41,696	$	1,743,151	$	46,627	$	1,726,203	$	52,217

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

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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.

The Corporation's warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loan's closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, the Corporation enters into forward sales contracts on a significant portion of the warehouse to provide an economic hedge against those changes in fair value. Mortgage loans held for sale and the forward sales contracts were recorded at fair value with ineffective changes in value recorded in current earnings as Loan sales and servicing income.

Credit contracts. The Corporation has bought and sold credit protection in the form of participations on interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business. Credit derivatives, whereby the Corporation has purchased credit protection, entitles the Corporation to receive a payment from the counterparty when the customer fails to make payment on any amounts due to the Corporation. Swap participations whereby the Corporation has purchased credit protection have maturities that range between three to nine years. For swap participations where the Corporation sold credit protection, the Corporation has guaranteed payment in the event that the counterparty experiences a loss on the swap due to a failure to pay by the Corporation's commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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. Credit derivatives whereby the Corporation has sold credit protection have maturities ranging from less than one year to ten years. The Corporation's maximum estimated exposure to sold swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $4.2 million as of September 30, 2014. The fair values of the sold swap participations were not material at September 30, 2014, December 31, 2013, and September 30, 2013.

Gains and losses recognized in income on non-designated hedging instruments for the three and nine months ended September 30, 2014 and 2013 are as follows:

Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands)
		Three Months Ended September 30,						Nine Months Ended September 30,
		2014			2013			2014			2013
Mortgage loan commitments	Other operating income	$	(516	)	$	1,950		$	1,084		$	(1,672	)
Forward sales contracts	Other operating income	454			(5,538		)	(476		)	(1,019		)
Foreign exchange contracts	Other operating income	320			195			1,012			(118		)
Equity swap	Other operating expense	515			—			515			—
Total		$	773		$	(3,393	)	$	2,135		$	(2,809	)

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of "credit risk" or the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer, a derivative clearing organization, or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. Derivative contracts may be executed with a counterparty or cleared through a FCM with a derivative clearing organization approved by the Corporation's ALCO, and only within the Corporation's Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements using standard forms published by the ISDA. These agreements are to include thresholds 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 ALCO. Under the Dodd-Frank legislation, as of June 10, 2013, the Corporation must clear all interest rate swaps through a clearing house and the credit exposure is to the recognized derivative clearing organization. Margin requirements are established by the derivative clearing organization. When entering into cleared swap, the Corporation must post collateral to the FCM in the amount required by the clearing organization. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBS. Collateral posted against derivative liabilities was $55.0 million, $70.5 million and $78.2 million as of September 30, 2014, December 31, 2013, and September 30, 2013, 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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 September 30, 2014, December 31, 2013, and September 30, 2013. 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 September 30, 2014
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (a)			Collateral (b)
Derivative Assets
Interest rate swaps - non-designated	$	1,498	$	—	$	1,498	$	(1,498	)	$	—		$	—
Foreign exchange	180		—		180		—			(180		)	—
Total derivative assets	$	1,678	$	—	$	1,678	$	(1,498	)	$	(180	)	$	—
Derivative liabilities
Interest rate swaps - designated	$	7,584	$	—	$	7,584	$	—		$	(7,584	)	$	—
Interest rate swaps - non-designated	39,439		—		39,439		(1,498		)	(37,941		)	—
Foreign exchange	—		—		—		—			—			—
Total derivative liabilities	$	47,023	$	—	$	47,023	$	(1,498	)	$	(45,525	)	$	—

	As of December 31, 2013
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (a)			Collateral (b)
Derivative assets
Interest rate swaps - non-designated	$	4,791	$	—	$	4,791	$	(4,791	)	$	—		$	—
Foreign exchange	4		—		4		(4		)	—			—
Total derivative assets	$	4,795	$	—	$	4,795	$	(4,795	)	$	—		$	—
Derivative liabilities
Interest rate swaps - designated	$	11,574	$	—	$	11,574	$	—		$	(11,574	)	$	—
Interest rate swaps - non-designated	41,787		—		41,787		(4,791		)	(36,996		)	—
Foreign exchange	46		—		46		(4		)	(42		)	—
Total derivative liabilities	$	53,407	$	—	$	53,407	$	(4,795	)	$	(48,612	)	$	—

	As of September 30, 2013
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheet		Net amounts presented in the consolidated balance sheet		Gross amounts not offset in the consolidated balance sheet						Net amount
(In thousands)							Financial instruments (a)			Collateral (b)
Derivative assets
Interest rate swaps - non-designated	$	2,585	$	—	$	2,585	$	(2,585	)	$	—		$	—
Foreign exchange	66		—		66		(92		)	26			—
Total derivative assets	$	2,651	$	—	$	2,651	$	(2,677	)	$	26		$	—
Derivative liabilities
Interest rate swaps - designated	$	13,289	$	—	$	13,289	$	—		$	(13,289	)	$	—
Interest rate swaps - non-designated	48,458		—		48,458		(2,585		)	(45,873		)	—
Foreign exchange	92		—		92		(92		)	—			—
Total derivative liabilities	$	61,839	$	—	$	61,839	$	(2,677	)	$	(59,162	)	$	—

^(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.

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^(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 Sheets unless the counterparty defaults. For derivative liabilities, this includes the fair value of securities pledged by the Corporation to the counterparty. These securities are included in the Consolidated Balance Sheets unless the Corporation defaults.

9.     Benefit Plans

The Corporation sponsors several qualified and nonqualified pension and other postretirement plans for certain of its employees. The net periodic pension cost is based on estimated values provided by an outside actuary. The components of net periodic benefit cost are as follows:

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2014			2013			2014			2013
Service cost	$	182		$	585		$	546		$	1,755
Interest cost	3,584			2,632			10,753			7,896
Expected return on assets	(4,009		)	(2,960		)	(12,026		)	(8,880		)
Amortization of unrecognized prior service costs	633			117			1,965			351
Amortization of Actuarial Gain	708			1,174			2,221			3,522
Net periodic pension cost	$	1,098		$	1,548		$	3,459		$	4,644

	Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2014			2013			2014			2013
Service cost	$	16		$	24		$	49		$	74
Interest cost	164			130			491			390
Amortization of unrecognized prior service costs	(117		)	(117		)	(351		)	(351		)
Amortization of Actuarial Gain	59			67			177			201
Net periodic postretirement cost	$	122		$	104		$	366		$	314

For further information on the Corporation's employee benefit plans, refer to Note 13 (Benefit Plans) to the consolidated financial statements in the 2013 Form 10-K.

Fair Value Measurement

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

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

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• 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 as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the overall fair value measurement.

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

• the amount of time since the last relevant valuation;

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

• volatility associated with the primary pricing components.

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

• an independent review and approval of valuation models;

• recurring detailed reviews of profit and loss; and

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

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

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

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

			Fair Value by Hierarchy
(In thousands)	September 30, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,916	$	2,916	$	—	$	—
Non-marketable equity securities	2,500		—		—		2,500
U.S. States and political subdivisions	237,067		—		237,067		—
Residential mortgage-backed securities:
U.S. government agencies	996,387		—		996,387		—
Commercial mortgage-backed securities:
U.S. government agencies	84,764		—		84,764		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,600,317		—		1,600,317		—
Non-agency	7		—		1		6
Commercial collateralized mortgage-backed securities:
U.S. government agencies	194,017		—		194,017		—
Corporate debt securities	54,594		—		—		54,594
Asset-backed securities:
Collateralized loan obligations	290,421		—		—		290,421
Total available for sale securities	3,462,990		2,916		3,112,553		347,521
Residential loans held for sale	19,512		—		19,512		—
Derivative assets:
Interest rate swaps - nondesignated	40,937		—		40,937		—
Mortgage loan commitments	1,975		—		1,975		—
Foreign exchange	185		—		185		—
Total derivative assets	43,097		—		43,097		—
Total fair value of assets (a)	$	3,525,599	$	2,916	$	3,175,162	$	347,521
Derivative liabilities:
Interest rate swaps - fair value hedges	$	7,584	$	—	$	7,584	$	—
Interest rate swaps - nondesignated	40,937		—		40,937		—
Forward sales contracts	91		—		91		—
Foreign exchange	153		—		153		—
Equity swap	515		—		—		515
Total derivative liabilities	49,280		—		48,765		515
True-up liability	12,804		—		—		12,804
Total fair value of liabilities (a)	$	62,084	$	—	$	48,765	$	13,319
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	22,229	$	—	$	—	$	22,229
Impaired loans (c)	55,406		—		—		55,406
Other property (d)	14,896		—		—		14,896
Other real estate covered by loss share (e)	5,798		—		—		5,798
Total fair value	$	98,329	$	—	$	—	$	98,329

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

(b) - MSRs with a recorded investment of $22.2 million were reduced by a specific valuation allowance totaling $0.5 million to a reported carrying value of $21.7 million resulting in recognition of $0.1 million in recoveries included in loans sales and servicing income in the three months ended September 30, 2014.

(c) - Collateral dependent impaired loans with a recorded investment of $59.9 million were reduced by specific valuation allowance allocations totaling $4.5 million to a reported net carrying value of $55.4 million.

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

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

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

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

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

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

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

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

			Fair Value by Hierarchy
(In thousands)	September 30, 2013		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,096	$	3,096	$	—	$	—
Non-marketable equity securities	3,281				10		3,271
U.S. States and political subdivisions	272,224		—		272,224		—
Residential mortgage-backed securities:
U.S. government agencies	999,375		—		999,375		—
Commercial mortgage-backed securities:
U.S. government agencies	55,932		—		55,932		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,505,706		—		1,505,706		—
Non-agency	9		—		—		9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	97,154		—		97,154		—
Corporate debt securities	50,850		—		—		50,850
Asset-backed securities:
Collateralized loan obligations	268,632		—		—		268,632
Total available-for-sale securities	3,256,259		3,096		2,930,401		322,762
Residential loans held for sale	17,813		—		17,813		—
Derivative assets:
Interest rate swaps - nondesignated	51,044		—		51,044		—
Mortgage loan commitments	2,729		—		2,729		—
Foreign exchange	66		—		66		—
Total derivative assets	53,839		—		53,839		—
Total fair value of assets (a)	$	3,327,911	$	3,096	$	3,002,053	$	322,762
Derivative liabilities:
Interest rate swaps - fair value hedges	13,289		—		13,289		—
Interest rate swaps - nondesignated	51,044		—		51,044		—
Forward sale contracts	1,081		—		1,081		—
Foreign exchange	92		—		92		—
Total derivative liabilities	65,506		—		65,506		—
True-up liability	11,457		—		—		11,457
Total fair value of liabilities (a)	$	76,963	$	—	$	65,506	$	11,457
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	22,616	$	—	$	—	$	22,616
Impaired loans (c)	48,129		—		—		48,129
Other property (d)	13,413		—		—		13,413
Other real estate covered by loss share (e)	8,475		—		—		8,475
Total fair value	$	92,633	$	—	$	—	$	92,633

(a) - There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended September 30, 2013.

(b) - MSRs with a recorded investment of $22.9 million were reduced by a specific valuation allowance totaling $0.6 million to a reported carrying value of $22.4 million resulting in recovery of a previously recognized expense of $0.1 million in the three months ended September 30, 2013.

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(c) - Collateral dependent impaired loans with a recorded investment of $51.3 million were reduced by specific valuation allowance allocations totaling $3.1 million to a reported net carrying value of $48.1 million.

(d) - Amounts do not include assets held at cost at September 30, 2013. During the three months ended September 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 September 30, 2013. During the three months ended September 30, 2013, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.2 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 September 30, 2014 and 2013, 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 90% of the available-for-sale portfolio is Level 2. For the majority of available-for sale securities, the Corporation obtains fair value measurements from an independent third-party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs.  The independent pricing service uses industry-standard models to price U.S. Government agencies and MBS that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Obligations of state and political subdivisions are valued using a matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service for securities classified as Level 2 are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

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

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

CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on

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

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

Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and FNMA, and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential real estate loans held for sale are classified as Level 2.

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

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

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

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The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its MSRs. The Corporation reviews the estimated fair values and assumptions used by the third-party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience. See Note 11 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.

Derivatives. The Corporation's derivatives include interest rate swaps and written loan commitments and forward sales contracts related to residential mortgage loan origination activity. Valuations for interest rate swaps are derived from third-party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk. These fair value measurements are classified as Level 2. The fair values of written loan commitments and forward sales contracts on the associated loans are based on quoted prices for similar loans in the secondary market, consistent with the valuation of residential mortgage loans held for sale. Expected net future cash flows related to loan servicing activities are included in the fair value measurement of written loan commitments. A written loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected "fallout" (interest rate locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit by the lender or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the written loan commitments in their entirety. These measurements are classified as Level 2.

Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation's Asset and Liability Committee 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 September 30, 2014.

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

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

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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 3.31% and 3.59% as of September 30, 2014 and 2013, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.7 million and $0.7 million, respectively, as of September 30, 2014.

In accordance with the loss sharing agreements governing the Midwest acquisition, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was $8.0 million, $7.1 million, and $7.3 million as of September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

In accordance with the loss sharing agreements governing the George Washington acquisition, on April 14, 2020 (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the George Washington acquisition was $4.8 million, $4.3 million, and $4.2 million as of September 30, 2014, December 31, 2013, and September 30, 2013, 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 3 (Loans) and Note 4 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

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

	Three Months Ended September 30,										Nine Months Ended September 30,
	2014					2013					2014					2013
(In thousands)	Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability		Available-for-sale securities			True-up liability
Balance at beginning of period	$	350,733		$	12,581	$	212,512		$	10,937	$	347,610		$	11,463	$	49,661		$	12,259
Fair value of assets acquired	—			—		—			—		—			—		3,271			—
(Gains) losses included in earnings (a)	—			223		—			520		—			1,341		—			(802		)
Unrealized gains (losses) (b)	277			—		(1,704		)	—		3,298			—		(2,066		)	—
Purchases	—			—		111,941			—		—			—		271,857			—
Settlements	(3,489		)	—		13			—		(3,387		)	—		39			—
Balance at ending of period	$	347,521		$	12,804	$	322,762		$	11,457	$	347,521		$	12,804	$	322,762		$	11,457

^(a) Reported in "Other expense"

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

Fair Value Option

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

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

(In thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Aggregate fair value carrying amount	$	19,512	$	11,622	$	17,813
Aggregate unpaid principal / contractual balance	18,937		11,438		17,179
Carrying amount over aggregate unpaid principal (a)	$	575	$	184	$	634

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

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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 September 30, 2014, December 31, 2013, and September 30, 2013 are shown in the tables below.

	September 30, 2014
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	485,328	$	485,328	$	485,328	$	—	$	—
Available-for-sale securities	3,462,990		3,462,990		2,916		3,112,553		347,521
Held-to-maturity securities	3,002,262		2,947,172		—		2,947,172		—
Other securities	148,421		148,421		—		148,421		—
Loans held for sale	19,512		19,512		—		19,512		—
Net originated loans	11,980,876		11,995,816		—		—		11,995,816
Net acquired loans	2,738,898		2,869,303		—		—		2,869,303
Net covered loans and loss share receivable	382,175		382,175		—		—		382,175
Accrued interest receivable	65,736		65,736		—		65,736		—
Derivatives	43,097		43,097		—		43,097		—
Financial liabilities:
Deposits	$	19,366,911	$	19,370,624	$	—	$	19,370,624	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,273,290		1,273,290		—		1,273,290		—
Wholesale borrowings	608,463		611,753		—		611,753		—
Long-term debt	249,933		259,051		—		259,051		—
Accrued interest payable	5,310		5,310		—		5,310		—
Derivatives	49,280		49,280		—		48,765		515

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	December 31, 2013
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	917,822	$	917,822	$	917,822	$	—	$	—
Available-for-sale securities	3,273,174		3,273,174		3,036		2,922,527		347,611
Held-to-maturity securities	2,935,688		2,824,240		—		2,824,240		—
Other securities	180,803		180,803		—		180,803		—
Loans held for sale	11,622		11,622		—		11,622		—
Net originated loans	10,116,903		10,017,722		—		—		10,017,722
Net acquired loans	3,494,874		3,627,275		—		—		3,627,275
Net covered loans and loss share receivable	547,943		547,943		—		—		547,943
Accrued interest receivable	52,929		52,929		—		52,929		—
Derivatives	47,902		47,902		—		47,902		—
Financial liabilities:
Deposits	$	19,533,601	$	19,532,368	$	—	$	19,532,368	$	—
Federal funds purchased and securities sold under agreements to repurchase	851,535		851,535		—		851,535		—
Wholesale borrowings	200,600		204,124		—		204,124		—
Long-term debt	324,428		319,711		—		319,711		—
Accrued interest payable	9,339		9,339		—		9,339		—
Derivatives	58,201		58,201		—		58,201		—

	September 30, 2013
	Carrying Amount		Fair Value
(In thousands)			Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	1,247,267	$	1,247,267	$	1,247,267	$	—	$	—
Available for sale securities	3,256,259		3,256,259		3,096		2,930,401		322,762
Held to maturity securities	2,749,934		2,658,433		—		2,658,433		—
Other securities	270,369		270,369		—		270,369		—
Loans held for sale	17,813		17,813		—		17,813		—
Net originated loans	9,690,848		9,623,848		—		—		9,623,848
Net acquired loans	3,817,421		3,817,421		—		—		3,817,421
Net covered loans and loss share receivable	608,732		608,732		—		—		608,732
Accrued interest receivable	49,820		49,820		—		49,820		—
Derivatives	53,839		53,839		—		53,839		—
Financial liabilities:
Deposits	$	19,489,533	$	19,508,531	$	—	$	19,508,531	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,049,801		1,049,801		—		1,049,801		—
Wholesale borrowings	200,858		204,461		—		204,461		—
Long-term debt	324,425		321,255		—		321,255		—
Accrued interest payable	5,884		5,884		—		5,884		—
Derivatives	65,506		65,506		—		65,506		—

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

Cash and cash equivalents – Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value.

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

Loans held for sale – The majority of loans held for sale are residential mortgage loans which are recorded at fair value. All other loans held for sale are recorded at the lower of cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.

Net originated loans – The originated loan portfolio was segmented based on loan type and repricing characteristics. Carrying values are used to estimate fair values of variable rate loans. A discounted cash flow method was used to estimate the fair value of fixed-rate loans. Discounting was based on the contractual cash flows, and discount rates are based on the year-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

Net acquired and covered loans – Fair values for acquired and covered loans were estimated based on a discounted projected cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Loss share receivable – This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable with the covered assets should the Bank choose to dispose of them. Fair value was estimated using discounted projected cash flows related to the FDIC loss share agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt from the FDIC.

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

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

Deposits – The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, are established at carrying value because of the customers' ability to withdraw funds immediately. A discounted cash flow method is used to estimate the fair value of fixed rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar remaining maturities would be issued.

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

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estimate the fair value of the Corporation's long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

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

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

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

11.     Mortgage Servicing Rights and Mortgage Servicing Activity

In the nine months endedSeptember 30, 2014and2013, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $257.0 million and $468.8 million, respectively, and recognized pretax gains of $5.4 million and $10.8 million, respectively, which are included as a component of loan sales and servicing income.As of September 30, 2014and2013, the Corporation retained the related MSRs on $228.5 million and $431.9 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.6 billion of residential mortgage loans at September 30, 2014 and $2.7 billion at September 30, 2013. For the nine months ended September 30, 2014 and 2013, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $4.9 million and $4.7 million, respectively.

Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its MSRs. Additional information can be found in Note 10 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2014			2013			2014			2013
Balance at beginning of period	$	22,150		$	22,604		$	22,760		$	21,316
Addition of Citizens' MSRs on Acquisition Date	—			—			—			1,065
Additions	1,035			1,450			2,242			4,151
Amortization	(996		)	(1,131		)	(2,813		)	(3,609		)
Balance at end of period	22,189			22,923			22,189			22,923
Valuation allowance at beginning of period	(562		)	(482		)	(282		)	(2,564		)
Recoveries (Additions)	57			(90		)	(223		)	1,992
Valuation allowance at end of period	(505		)	(572		)	(505		)	(572		)
MSRs, net carrying balance	$	21,684		$	22,351		$	21,684		$	22,351
Fair value at end of period	$	22,229		$	22,616		$	22,229		$	22,616

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

allowance is established through a charge to earnings to the extent the amortized cost of the MSRs 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 nine months endedSeptember 30, 2014 and 2013.

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

Prepayment speed assumption (annual CPR)	10.88		%
Decrease in fair value from 10% adverse change	$	753
Decrease in fair value from 25% adverse change	$	1,813
Discount rate assumption	9.89		%
Decrease in fair value from 100 basis point adverse change	$	699
Decrease in fair value from 200 basis point adverse change	$	1,352
Expected weighted-average life (in months)	101.5

12.     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.

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Overdraft Litigation

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

Merger Litigation

Between September 17, 2012 and October 5, 2012, alleged shareholders of Citizens filed six purported class action lawsuits in the Circuit Court of Genesee County, Michigan, relating to the proposed merger between Citizens and FirstMerit, which merger closed in April 2013. The lawsuits were consolidated under the caption In re Citizens Republic Bancorp, Inc. Shareholder Litigation, Case No. 12-99027-CK (the "Lawsuit"). The consolidated complaint in the Lawsuit alleges that the former directors of Citizens breached their fiduciary duties by failing to obtain the best available price in the merger and by not providing Citizens shareholders with all material information related to the merger, and that FirstMerit and Citizens aided and abetted those alleged breaches of fiduciary duty.  The Complaint sought declaratory and injunctive relief to prevent the consummation of the merger, rescissory damages and other equitable relief.  

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

CRBC 401(k) Litigation

Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to "the present." In April 2014, the court denied the defendants' motion to dismiss the second amended complaint. The action is currently stayed pending a court-ordered mediation process.

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

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 8 (Derivatives and Hedging Activities). Commitments generally are extended at the then-prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The reserve for unfunded lending commitments at September 30, 2014, December 31, 2013, and September 30, 2013 was $7.0 million, $7.9 million and $8.5 million, respectively. Additional information pertaining to this allowance is included in Note 4 (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 September 30, 2014, December 31, 2013, and September 30, 2013. This amount represents the Corporation's maximum exposure to loss if the customer were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.

Loan commitments
(In thousands)		September 30, 2014		December 31, 2013		September 30, 2013
	Commercial	$	3,640,755	$	3,367,625	$	3,521,227
	Consumer	2,361,476		2,179,010		2,057,115
	Total loan commitments	$	6,002,231	$	5,546,635	$	5,578,342

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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 September 30, 2014, December 31, 2013, and September 30, 2013.

Financial guarantees
(In thousands)		September 30, 2014		December 31, 2013		September 30, 2013
	Standby letters of credit	$	227,835	$	196,400	$	200,835
	Loans sold with recourse	43,260		45,082		50,882
	Total financial guarantees	$	271,095	$	241,482	$	251,717

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 $142.3 million at September 30, 2014, the remaining guarantees extend in varying amounts through 2019.

Asset Sales

The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells residential mortgage loans serviced released to other investors which contain early payment default recourse provisions. As of September 30, 2014, December 31, 2013, and September 30, 2013, the Corporation had sold $33.0 million, $34.6 million, and $38.2 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $7.6 million, $8.7 million, and $7.9 million as of September 30, 2014, December 31, 2013, and September 30, 2013, respectively, for potential losses from representation and warranty obligations and early payment default recourse provisions.

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

The total reserve associated with loans sold with recourse was approximately $8.7 million, $9.9 million, and $9.0 million as of September 30, 2014, December 31, 2013, and September 30, 2013, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may

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FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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 nine months ended September 30, 2014 and 2013 are as follows:

	Three Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	7,900		$	1,122	$	9,022
Net realized losses	(600		)	—		(600		)
Net increase (decrease) to reserve	250			—		250
Balance at end of period	$	7,550		$	1,122	$	8,672

	Three Months Ended September 30, 2013
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	7,287		$	1,106	$	8,393
Assumed obligation	—			—		—
Net realized losses	(1,983		)	—		(1,983		)
Net increase (decrease) to reserve	2,546			3		2,549
Balance at end of period	$	7,850		$	1,109	$	8,959

	Nine Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net realized losses	(3,357		)	—		(3,357		)
Net increase (decrease) to reserve	2,170			8		2,178
Balance at end of period	$	7,550		$	1,122	$	8,672

	Nine Months Ended September 30, 2013
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans			Total repurchase reserve
Balance at beginning of period	$	1,500		$	1,167		$	2,667
Assumed obligation	6,000			—			6,000
Net realized losses	(3,053		)	—			(3,053		)
Net increase (decrease) to reserve	3,403			(58		)	3,345
Balance at end of period	$	7,850		$	1,109		$	8,959

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13.     Changes and Reclassifications Out of Accumulated Other Comprehensive Income

The following table presents the changes in AOCI by component of comprehensive income for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30, 2014									Nine Months Ended September 30, 2014
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(5,696	)	$	(1,994	)	$	(3,702	)	$	(45,072	)	$	(15,775	)	$	(29,297	)
Changes in unrealized securities' holding gains/(losses)	(16,207		)	(5,672		)	(10,535		)	24,293			8,503			15,790
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(563		)	(197		)	(366		)	(1,551		)	(543		)	(1,008		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(14		)	(5		)	(9		)	(150		)	(53		)	(97		)
Balance at the end of the period	(22,480		)	(7,868		)	(14,612		)	(22,480		)	(7,868		)	(14,612		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(55,084		)	(19,279		)	(35,805		)	(57,812		)	(20,233		)	(37,579		)
Current year actual losses (gains)	—			—			—			—			—			—
Amortization of actuarial gain	768			269			499			2,398			839			1,559
Amortization of prior service cost reclassified to other noninterest expense	516			181			335			1,614			565			1,049
Balance at the end of the period	(53,800		)	(18,829		)	(34,971		)	(53,800		)	(18,829		)	(34,971		)
Total Accumulated Other Comprehensive Income	$	(76,280	)	$	(26,697	)	$	(49,583	)	$	(76,280	)	$	(26,697	)	$	(49,583	)

	Three Months Ended September 30, 2013									Nine Months Ended September 30, 2013
(In thousands)	Pretax			Tax			After tax			Pretax			Tax			After tax
Unrealized and realized securities gains and losses:
Balance at the beginning of the period	$	(420	)	$	(146	)	$	(274	)	$	85,259		$	29,841		$	55,418
Changes in unrealized securities' holding gains/(losses)	(17,491		)	(6,123		)	(11,368		)	(104,853		)	(36,699		)	(68,154		)
Changes in unrealized securities' holding gains/(losses) that result from securities being transferred into available-for-sale from held-to-maturity	(534		)	(187		)	(347		)	(1,654		)	(579		)	(1,075		)
Net losses/(gains) realized on sale of securities reclassified to noninterest income	(1		)	—			(1		)	2,802			981			1,821
Balance at the end of the period	(18,446		)	(6,456		)	(11,990		)	(18,446		)	(6,456		)	(11,990		)
Pension plans and other postretirement benefits:
Balance at the beginning and end of the period	(110,188		)	(38,565		)	(71,623		)	(110,188		)	(38,565		)	(71,623		)
Current year actual losses (gains)	—			—			—			—			—			—
Amortization of actuarial gain	—			—			—			—			—			—
Amortization of prior service cost reclassified to other noninterest expense	—			—			—			—			—			—
Balance at the end of the period	(110,188		)	(38,565		)	(71,623		)	(110,188		)	(38,565		)	(71,623		)
Total Accumulated Other Comprehensive Income	$	(128,634	)	$	(45,021	)	$	(83,613	)	$	(128,634	)	$	(45,021	)	$	(83,613	)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  - Continued

FIRSTMERIT CORPORATION AND SUBSIDIARIES 

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

(In thousands)	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014			Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(14	)	$	(150	)	Investment securities losses (gains), net
Tax expense (benefit) (35%)	(5		)	(53		)	Income tax expense (benefit)
Reclassified amount, net of tax	$	(9	)	$	(97	)

(In thousands)	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013		Income statement line item presentation
Realized (gains)/losses on sale of securities	$	(1	)	$	2,802	Investment securities losses (gains), net
Tax expense (benefit) (35%)	—			981		Income tax expense (benefit)
Reclassified amount, net of tax	$	(1	)	$	1,821

14.     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 SEC. In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.

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

Figure 1. Consolidated Financial Highlights

Consolidated Financial Highlights
(Unaudited)	Three Months Ended															Nine Months Ended
(Dollars in thousands, except per share amounts)	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
	2014			2014			2014			2013			2013			2014			2013
EARNINGS
Net interest income TE (a)	$	197,644		$	199,666		$	197,854		$	202,145		$	207,079		$	595,166		$	523,057
TE adjustment (a)	4,066			4,089			3,954			4,077			3,739			12,109			10,340
Provision for originated loan losses	4,862			5,993			3,654			1,552			2,523			14,509			11,482
Provision for acquired loan losses	4,411			5,815			7,827			5,515			2,033			18,053			2,033
Provision for covered loan losses	(81		)	3,445			3,055			2,983			1,823			6,420			10,119
Noninterest income	69,733			72,560			67,270			72,420			71,090			209,564			197,923
Noninterest expense	163,145			167,400			169,331			178,620			210,599			499,878			505,633
Net income	63,898			59,519			53,455			57,174			40,715			176,872			126,510
Diluted EPS (c)	0.37			0.35			0.31			0.33			0.23			1.03			0.82
PERFORMANCE RATIOS
Return on average assets (ROA)	1.03		%	0.98		%	0.90		%	0.94		%	0.67		%	0.97		%	0.82		%
Return on average equity (ROE)	9.03		%	8.62		%	7.93		%	8.48		%	6.07		%	8.54		%	7.29		%
Return on average tangible common equity (d)	13.41		%	12.92		%	11.98		%	12.96		%	9.29		%	12.78		%	10.98		%
Net interest margin TE (a)	3.60		%	3.75		%	3.84		%	3.89		%	4.05		%	3.73		%	3.93		%
Efficiency ratio (d)	59.92		%	60.43		%	62.77		%	64.08		%	74.64		%	61.04		%	69.07		%
Number of full-time equivalent employees	4,302			4,392			4,521			4,570			4,666			4,302			4,666
MARKET DATA
Book value per common share	$	17.05		$	16.88		$	16.62		$	16.38		$	16.08		$	17.05		$	16.08
Tangible book value per common share (d)	11.52			11.33			11.03			10.77			10.47			11.52			10.47
Period end common share market value	17.62			19.75			20.83			22.23			21.72			17.62			21.72
Market as a % of book	103		%	117		%	125		%	136		%	135		%	103		%	135		%
Cash dividends per common share	$	0.16		$	0.16		$	0.16		$	0.16		$	0.16		$	0.48		$	0.48
Common Stock dividend payout ratio	43.24		%	45.71		%	51.61		%	48.48		%	69.57		%	46.60		%	58.54		%
Average basic common shares	165,389			165,335			165,060			165,054			165,044			165,263			144,402
Average diluted common shares	165,804			166,147			166,004			166,097			165,874			165,916			147,392
Period end common shares	165,384			165,393			165,087			165,056			165,045			165,384			165,045
Common shares repurchased	10			186			51			17			7			247			201
Common Stock market capitalization	$	2,914,066		$	3,266,512		$	3,438,762		$	3,669,195		$	3,584,777		$	2,914,066		$	3,584,777
ASSET QUALITY (excluding acquired and covered loans) (b)
Gross charge-offs	$	11,410		$	11,148		$	13,160		$	9,913		$	8,515		$	35,718		$	30,260
Net charge-offs	5,929			6,159			8,022			3,359			2,877			20,110			12,133
Allowance for originated loan losses	90,883			91,950			92,116			96,484			98,291			90,883			98,291
Reserve for unfunded lending commitments	6,966			7,107			7,481			7,907			8,493			6,966			8,493
Nonperforming assets (NPAs)	63,119			60,922			62,711			60,883			55,426			63,119			55,426
Net charge-offs to average loans ratio	0.20		%	0.22		%	0.31		%	0.13		%	0.12		%	0.24		%	0.18		%
Allowance for originated loan losses to period-end loans	0.75		%	0.80		%	0.85		%	0.94		%	1.00		%	0.75		%	1.00		%
Allowance for credit losses to period-end loans	0.81		%	0.86		%	0.92		%	1.02		%	1.09		%	0.81		%	1.09		%
NPAs to loans and other real estate	0.52		%	0.53		%	0.58		%	0.60		%	0.57		%	0.52		%	0.57		%
Allowance for originated loan losses to nonperforming loans	231.13		%	250.27		%	212.01		%	228.62		%	276.19		%	231.13		%	276.19		%
Allowance for credit losses to nonperforming loans	248.85		%	269.61		%	229.23		%	247.35		%	300.06		%	248.85		%	300.06		%
CAPITAL & LIQUIDITY
Period end tangible common equity to assets (d)	8.01		%	7.89		%	7.69		%	7.70		%	7.41		%	8.01		%	7.41		%
Average equity to assets	11.42		%	11.40		%	11.32		%	11.12		%	11.08		%	11.38		%	11.24		%
Average equity to total loans	18.58		%	18.90		%	19.04		%	18.81		%	18.97		%	18.83		%	18.68		%
Average total loans to deposits	77.36		%	75.15		%	73.11		%	72.84		%	72.11		%	75.22		%	74.99		%
AVERAGE BALANCES
Assets	$	24,583,776		$	24,291,276		$	24,144,570		$	24,034,846		$	24,013,594		$	24,337,653		$	20,632,658
Deposits	19,531,800			19,496,795			19,636,506			19,517,476			19,456,231			19,554,649			16,554,834
Originated loans	11,814,314			11,092,101			10,448,383			9,988,587			9,377,826			11,123,269			8,999,316
Acquired loans, including covered loans, less loss share receivable	3,295,547			3,558,810			3,907,802			4,227,693			4,652,101			3,585,143			3,415,749
Earning assets	21,804,243			21,367,496			20,903,863			20,593,750			20,276,825			21,361,832			17,790,295
Shareholders' equity	2,807,886			2,768,352			2,733,226			2,673,635			2,661,546			2,770,095			2,319,638
ENDING BALANCES
Assets	$	24,608,207		$	24,564,431		$	24,498,661		$	23,912,028		$	24,137,730		$	24,608,207		$	24,137,730
Deposits	19,366,911			19,298,396			19,811,674			19,533,601			19,489,533			19,366,911			19,489,533
Originated loans	12,071,759			11,467,193			10,826,913			10,213,387			9,789,139			12,071,759			9,789,139
Acquired loans, including covered loans,less loss share receivable	3,139,521			3,458,453			3,726,952			4,025,758			4,401,711			3,139,521			4,401,711
Goodwill	741,740			741,740			741,740			741,740			741,740			741,740			741,740
Intangible assets	73,953			76,886			79,819			82,755			85,447			73,953			85,447
Earning assets	21,930,840			21,789,773			21,715,302			21,048,910			21,297,250			21,930,840			21,297,250
Total shareholders' equity	2,820,431			2,791,738			2,742,966			2,702,894			2,654,645			2,820,431			2,654,645
NOTES:

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

(b) - Due to the impact of business combination accounting and protection of FDIC loss sharing agreements, which provide considerable protection against credit risk, acquired loans and covered assets are excluded from this table to provide for improved comparability to prior periods and better perspective into asset quality trends.

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

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

HIGHLIGHTS OF THIRD QUARTER OF 2014 PERFORMANCE

The Corporation reported third quarter 2014 net income of $63.9 million, or $0.37 per diluted share. This compares with $59.5 million, or $0.35 per diluted share, for the second quarter 2014 and $40.7 million, or $0.23 per diluted share, for the third quarter 2013.

ROE and ROA for the third quarter 2014 were 9.03% and 1.03%, respectively, compared with 8.62% and 0.98%, respectively, for the second quarter 2014 and 6.07% and 0.67%, respectively, for the third quarter 2013.

Net Interest Income

Net interest income on a fully tax-equivalent (“TE”) basis was $197.6 million in the third quarter 2014 compared with $199.7 million in the second quarter 2014 and $207.1 million in the third quarter 2013.

Net interest margin was 3.60% for the third quarter 2014 compared with 3.75% for the second quarter 2014 and 4.05% for the third quarter 2013. Net interest margin compression in the third quarter, compared with the second quarter of 2014, resulted from lower accretion from the acquired and covered loan portfolios due to the continued decline in the loan balances.

Average originated loans were $11.8 billion during the third quarter 2014, an increase of $722.2 million, or 6.51%, compared with the second quarter 2014, and an increase of $2.4 billion, or 25.98%, compared with the third quarter 2013. Average originated commercial loans increased$349.8 million, or 4.87%, compared with the prior quarter, and increased$1.4 billion, or 22.89%, compared with the year-ago quarter.

Average deposits were $19.5 billion during the third quarter 2014, an increase of $35.0 million, or 0.18%, compared with the second quarter 2014, and an increase of $75.6 million, or 0.39%, compared with the third quarter 2013. During the third quarter 2014, average core deposits, which exclude time deposits, increased$33.2 million, or 0.19%, compared with the second quarter 2014 and increased$460.9 million, or 2.75%, compared with the third quarter 2013. Average time deposits increased$1.8 million, or 0.08%, and decreased$385.3 million, or 14.16%, respectively, over the prior and year-ago quarters. For the third quarter 2014, average core deposits accounted for 88.04% of total average deposits, compared with 88.03% for thesecond quarter 2014 and 86.02% for the third quarter 2013.

Average investments decreased$16.3 million, or 0.24%, compared with the second quarter 2014 and increased$487.0 million, or 7.92%, compared with the third quarter 2013.

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Noninterest Income

Noninterest income, excluding gains and losses on securities transactions, for the third quarter 2014 was $69.7 million, a decrease of $2.8 million, or 3.81%, from the second quarter 2014 and a decrease of $1.4 million, or 1.93%, from the third quarter 2013. Included in noninterest income in the third quarter 2014 was $1.2 million of net losses on covered loan resolutions, compared to net gains of $4.1 million and $1.8 million in the second quarter 2014 and third quarter 2013, respectively.

Noninterest income, excluding net securities gains and losses, as a percentage of net revenue for the third quarter 2014 was 26.08% compared with 26.63% for second quarter 2014 and 25.56% for the third quarter 2013. Net revenue is defined as net interest income, on an TE basis, plus other income, excluding gains and losses from securities sales.

Noninterest Expense

Noninterest expense for the third quarter 2014 was $163.1 million, a decrease of $4.3 million, or 2.54%, from the second quarter 2014 and a decrease of $47.5 million, or 22.53%, from the third quarter 2013. There were no merger related costs included in noninterest expense in the third quarter of 2014; however, included in noninterest expense in the third quarter 2013 were merger related costs associated with the Citizens acquisition of $33.4 million. The Corporation's efficiency ratio was 59.92% for the third quarter 2014, compared with 60.43% for the second quarter 2014 and 74.64% for the third quarter 2013.

The effective tax rate was 29.76% for the third quarter 2014 compared with 30.37% for the second quarter 2014 and 29.13% for the third quarter 2013.

Asset Quality (excluding acquired loans and covered assets)

Due to the impact of business combination accounting and protection against credit risk from FDIC loss sharing agreements, acquired loans and covered assets are excluded from the asset quality discussion to provide for improved comparability to prior periods and better perspective into asset quality trends. Acquired loans are recorded at fair value at the date of acquisition with no allowance brought forward in accordance with business combination accounting. Impaired acquired and covered loans are considered to be performing due to the application of the accretion method under the applicable accounting guidance.

Net charge-offs on originated loans totaled $5.9 million, or 0.20% of average originated loans in the third quarter 2014, compared with $6.2 million, or 0.22% of average originated loans, in the second quarter 2014 and $2.9 million, or 0.12% of average originated loans, in the third quarter 2013.

Nonperforming assets totaled $63.1 million at September 30, 2014, an increase of $2.2 million, or 3.61%, compared with June 30, 2014 and an increase of $7.7 million, or 13.88%, compared with September 30, 2013. Nonperforming assets at September 30, 2014 represented 0.52% of period-end originated loans plus other real estate compared with 0.53% at June 30, 2014 and 0.57% at September 30, 2013.

The allowance for originated loan losses totaled $90.9 million at September 30, 2014. At September 30, 2014, the allowance for originated loan losses was 0.75% of period-end originated loans compared with 0.80% at June 30, 2014 and 1.00% at September 30, 2013. The allowance for credit losses is the sum of the allowance for originated loan losses and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was 0.81% of period end originated loans at

87

September 30, 2014, compared with 0.86% at June 30, 2014 and 1.09% at September 30, 2013. The allowance for credit losses to nonperforming loans was 248.85% at September 30, 2014, compared with 269.61% at June 30, 2014 and 300.06% at September 30, 2013.

Balance Sheet

The Corporation’s total assets at September 30, 2014 were $24.6 billion, an increase of $43.8 million, or 0.18%, compared with June 30, 2014 and an increase of $470.5 million, or 1.95%, compared with September 30, 2013.

Total deposits were $19.4 billion at September 30, 2014, an increase of $68.5 million, or 0.36%, from June 30, 2014 and a decrease of $122.6 million, or 0.63%, from September 30, 2013. Core deposits totaled $17.0 billion at September 30, 2014, a decrease of $54.2 million, or 0.32%, from June 30, 2014 and an increase of $123.3 million, or 0.73%, from September 30, 2013.

Shareholders’ equity was $2.8 billion as of September 30, 2014 and June 30, 2014, and $2.7 billion as of September 30, 2013. The Corporation maintained a strong capital position as tangible common equity to assets was 8.01% at September 30, 2014, compared with 7.89% at June 30, 2014 and 7.41% at September 30, 2013. The common share cash dividend paid in the third quarter 2014 was $0.16 per share.

REGULATION AND SUPERVISION

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

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

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

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

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

On June 10, 2013, the Bank became subject to the Dodd-Frank Act's central clearing rules for certain interest rate swaps. A cleared swap is subject to continuous collateralization of swap obligations, real time

88

reporting, additional agreements and other regulatory constraints. The CME Group Inc. 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 effective generally on January 1, 2015 to implement the Basel III and regulatory capital changes required by the Dodd-Frank Act.

The new rules will apply to the Bank and the Corporation on a consolidated basis. The rules revise minimum capital requirements and prompt corrective action thresholds and introduce a new common equity tier 1 capital or "CET1" requirement. The new minimum capital to risk-weighted assets requirements are a common equity tier 1 capital ratio of 4.5% and a tier 1 capital ratio of 6.0%, which is an increase from 4.0%, and a total capital ratio that remains at 8.0%. The minimum leverage ratio is 4.0%. The rules adopt stricter eligibility criteria for regulatory capital instruments that would disallow the inclusion of instruments such as trust preferred securities in tier 1 capital going forward, and new constraints on the inclusion of minority interests, mortgage-servicing assets, deferred tax assets, and certain investments in the capital of unconsolidated financial institutions. A new capital conservation buffer of 2.5% of risk-weighted assets is being phased-in over a transition period ending December 31, 2018. Failure to maintain the in excess of the capital conservation buffer will restrict or prohibit dividends, share repurchases and discretionary bonuses. When the new rules are fully phased in, the minimum capital requirements plus the capital conservation buffer will exceed the prior prompt corrective action well-capitalized thresholds. The new rules increase the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and make selected other changes in risk weights to off-balance sheet commitments. The rules remove any reference to external credit ratings in determining risk weights.

Management is evaluating the new rules and their effects on the Corporation and the Bank, but Management believes the Corporation and the Bank will remain "well-capitalized” under the new rules. The new rules generally will be effective for the Corporation and the Bank beginning January 1, 2015.

Stress Testing

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

Stress tests assess the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a BHC or bank over a designated planning horizon of nine quarters, taking into account the organization's current condition, risks, exposures, strategies and activities, and such factors as the regulators may request of a specific organization. The stress tests are conducted under at least three required economic scenarios, consisting of a baseline, adverse, and severely adverse economic scenario as provided by the Federal Reserve for the Corporation and by the OCC for the Bank. Final supervisory guidance for stress testing by medium-sized companies, the “Supervisory Guidance,” was issued on March 5, 2014, and the OCC has proposed moving the date such stress tests are due from March 31 to July 31 each year.

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

89

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 submitted its initial stress tests to the regulators in March 2014.

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

NON-GAAP FINANCIAL MEASURES

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

• Preparation of operating budgets

• Monthly financial performance reporting

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

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

• Presentations to investors of corporate performance

Net interest income is presented on a TE basis and excludes net securities gains and losses. Net interest income-TE includes the effects of taxable-equivalent adjustments using a statutory federal income tax rate of 35% adjusted for the non-deductible portion of interest expense incurred to acquire the tax-free assets. Net

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interest income TE enhances comparability of net interest income arising from taxable and tax exempt sources and is the preferred industry measurement of net interest income.

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

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

Tangible common equity ratios have been a focus of some investors in analyzing the capital position of the Corporation absent the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. The new Basel III rules, adopted in July 2013, include a common equity Tier I capital (CETI) 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 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 this information will assist investors 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 various balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of several regulatory risk categories. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common equity (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 current banking regulatory requirements.

The Corporation currently calculates its risk-based capital ratios under guidelines adopted by the Federal Reserve based on the Basel I capital ratios. When fully phased-in, the new Basel III capital rules adopted in July 2013, will change capital requirements and place greater emphasis on common equity. The calculations provided below are estimates, based on the Corporation's current understanding of the 2013 regulatory capital rules implementing Basel III in the United States, including the Corporation's reading of the requirements, and informal feedback received through the regulatory process. The Corporation's understanding of the Federal Reserve'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 GAAP, these measures are considered to be non-GAAP financial

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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.

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

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

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

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Figure 2. GAAP to Non-GAAP Reconciliations

(Dollars in thousands)			September 30, 2014			December 31, 2013			September 30, 2013
Tangible common equity to tangible assets at period end
	Shareholders’ equity (GAAP)		$	2,820,431		$	2,702,894		$	2,654,645
	Less:	Intangible assets	73,953			82,755			85,447
		Goodwill	741,740			741,740			741,740
		Preferred Stock	100,000			100,000			100,000
	Tangible common equity (non-GAAP)		$	1,904,738		$	1,778,399		$	1,727,458
	Total assets (GAAP)		24,608,207			23,912,028			24,137,730
	Less:	Intangible assets	73,953			82,755			85,447
		Goodwill	741,740			741,740			741,740
	Tangible assets (non-GAAP)		$	23,792,514		$	23,087,533		$	23,310,543
	Tangible common equity to tangible assets ratio (non-GAAP)		8.01		%	7.70		%	7.41		%
Tier 1 common equity - Basel I
	Shareholders' equity (GAAP)		$	2,820,431		$	2,702,894		$	2,654,645
	Plus:	Net unrealized (gains) losses on available-for-sale securities	14,612			29,297			11,990
		Losses recorded in AOCI related to defined benefit postretirement plans	34,971			37,579			71,623
		Trust preferred securities	—			74,500			74,500
	Less:	Goodwill	741,740			741,740			741,740
		Intangible assets	73,953			82,755			85,447
		Disallowed deferred tax asset	105,483			137,027			141,625
		Other adjustments	1,677			1,944			1,997
	Tier 1 capital - Basel I (regulatory)		1,947,161			1,880,804			1,841,949
	Less:	Preferred Stock	100,000			100,000			100,000
		Trust preferred securities	—			74,500			74,500
	Tier 1 common equity - Basel I (non-GAAP)		$	1,847,161		$	1,706,304		$	1,667,449
	Risk-weighted assets - Basel I (regulatory)		$	17,433,132		$	16,320,833		$	16,404,686
	Tier 1 common equity ratio - Basel I (non-GAAP)		10.60		%	10.45		%	10.16		%
Tier 1 common ratio - Basel III (estimates) (1)
	Shareholders' equity (GAAP)		$	2,820,431		$	2,702,894		$	2,654,645
	Plus:	Net unrealized (gains) losses on available-for-sale securities	14,612			29,297			11,990
		Defined benefit postretirement plans in accumulated other comprehensive income	34,971			37,579			71,623
	Less:	Non-qualifying goodwill	741,740			741,740			741,740
		Non-qualifying intangible assets	73,953			82,755			85,447
		Disallowed deferred tax asset	173,039			205,962			174,500
		Other adjustments	1,677			1,944			1,997
	Tier 1 capital - Basel III (regulatory)		1,879,605			1,737,369			1,734,574
	Less:	Preferred Stock	100,000			100,000			100,000
	Tier 1 common equity - Basel III (regulatory)		$	1,779,605		$	1,637,369		$	1,634,574
	Risk-weighted assets - Basel III (regulatory)		$	18,191,746		$	17,114,143		$	17,337,237
	Tier 1 common equity ratio - Basel III		9.78		%	9.57		%	9.43		%

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GAAP to Non-GAAP Reconciliations, continued
(Dollars in thousands, except per share amounts)			September 30, 2014		December 31, 2013		September 30, 2013
Book value, common equity value and tangible book value, per share
	Shareholders’ equity (GAAP)		$	2,820,431	$	2,702,894	$	2,654,645
	Less:	Preferred Stock	100,000		100,000		100,000
	Common shareholders' equity		2,720,431		2,602,894		2,554,645
	Less:	Intangible assets	73,953		82,755		85,447
		Goodwill	741,740		741,740		741,740
	Tangible common equity (non-GAAP)		$	1,904,738	$	1,778,399	$	1,727,458
	Period end common shares		165,384		165,056		165,045
	Book value per share		$	17.05	$	16.38	$	16.08
	Common equity per share		16.45		15.77		15.48
	Tangible book value per common share		11.52		10.77		10.47

			Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)			2014			2013			2014			2013
	Net income		$	63,898		$	40,715		$	176,872		$	126,510
	Adjustments to net income, net of tax (2)
	Plus:	Acquisition related expenses	—			21,722			706			44,912
		Branch closure costs	$	—		$	—		$	2,568		$	—
		Adjusted net income (non-GAAP)	$	63,898		$	62,437		$	180,146		$	171,422
	Annualized net income (GAAP)		$	253,508		$	161,532		$	236,477		$	169,143
		Annualized adjusted net income (non-GAAP)	$	253,508		$	247,712		$	240,855		$	229,191
	Average assets (GAAP)		$	24,583,776		$	24,013,594		$	24,337,653		$	20,632,658
	Average equity (GAAP)		2,807,886			2,661,546			2,770,095			2,319,638
	Less:	Average Preferred Stock	100,000			100,000			100,000			87,546
	Average common shareholders' equity (non-GAAP)		2,707,886			2,561,546			2,670,095			2,232,092
	Less:	Average intangible assets	75,387			87,226			78,296			58,096
		Average goodwill	741,739			734,883			741,739			633,203
	Average tangible common equity (non-GAAP)		$	1,890,760		$	1,739,437		$	1,850,060		$	1,540,793
	Return on average assets		1.03		%	0.67		%	0.97		%	0.82		%
	Adjusted return on average assets net of Citizens' merger related charges (non-GAAP)		1.03		%	1.03		%	0.99		%	1.11		%
	Return on average equity		9.03		%	6.07		%	8.54		%	7.29		%
	Adjusted return on average equity net of Citizens' merger related charges (non-GAAP)		9.03		%	9.31		%	8.69		%	9.88		%
	Return on average tangible common equity (non-GAAP) (3)		13.41		%	9.29		%	12.78		%	10.98		%
	Adjusted return on average tangible common equity net of Citizens' merger related charges (non-GAAP)		13.41		%	14.24		%	13.02		%	14.87		%

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GAAP to Non-GAAP Reconciliations, continued

			Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)			2014			2013			2014			2013
	Net interest income (GAAP)		$	193,578		$	203,340		$	583,057		$	512,717
	TE Adjustment		4,066			3,739			12,109			10,340
	Net interest income - TE (non-GAAP)		197,644			207,079			595,166			523,057
	Noninterest income (GAAP)		69,733			71,090			209,564			197,923
	Adjustments to noninterest income (2)
	Less:	Securities gains (losses)	14			—			150			(2,803		)
	Plus:	Branch closure costs (3)	—			—			3,951			—
		Adjusted noninterest income (non-GAAP)	69,719			71,090			213,365			200,726
	Total revenue, TE excluding securities gains (losses) (non-GAAP)		267,363			278,169			808,531			723,783
	Noninterest expense (GAAP)		163,145			210,599			499,878			505,633
	Adjustments to noninterest expense (2)
	Less:	Intangible asset amortization	2,933			2,972			8,802			5,700
		Branch closures costs and acquisition related expenses (3)	—			33,418			1,086			66,302
		Adjusted noninterest expense (non-GAAP)	$	160,212		$	174,209		$	489,990		$	433,631
	Fee income ratio (non-GAAP)		26.08		%	25.56		%	26.03		%	27.73		%
	Efficiency ratio (non-GAAP)		59.92		%	74.64		%	61.04		%	69.07		%
	Adjusted efficiency ratio net of Citizens' merger related charges (non-GAAP)		59.92		%	62.63		%	60.60		%	59.91		%

(1) The Basel III calculations of Tier 1 common equity, RWA and the Tier 1 common equity ratio are based upon Management's current interpretation of the final Basel III rules issued by the Federal Reserve in July 2013, on a fully phased in basis.

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

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

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RESULTS OF OPERATIONS

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

	Three Months Ended
	September 30, 2014							June 30, 2014							September 30, 2013
(Dollars in thousands)	Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate
ASSETS
Cash and cash equivalents	$	521,210						$	662,000						$	1,415,430
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. government agency obligations (taxable)	5,276,354			$	26,502	1.99	%	5,303,645			$	26,751	2.02	%	4,849,135			$	23,551	1.93	%
Obligations of states and political subdivisions (tax exempt)	776,376			8,734		4.46	%	767,731			8,753		4.57	%	712,296			8,890		4.95	%
Other securities and federal funds sold	585,980			5,571		3.77	%	583,605			5,501		3.78	%	590,292			6,215		4.18	%
Total investment securities and federal funds sold	6,638,710			40,807		2.44	%	6,654,981			41,005		2.47	%	6,151,723			38,656		2.49	%
Loans held for sale	17,433			154		3.50	%	10,196			89		3.51	%	18,265			174		3.78	%
Loans, including loss share receivable (2)	15,148,100			171,302		4.49	%	14,702,319			173,320		4.73	%	14,106,837			182,406		5.13	%
Total earning assets	21,804,243			$	212,263	3.86	%	21,367,496			$	214,414	4.02	%	20,276,825			$	221,236	4.33	%
Total allowance for loan losses	(140,026		)					(146,368		)					(146,509		)
Other assets	2,398,349							2,408,148							2,467,848
Total assets	$	24,583,776						$	24,291,276						$	24,013,594
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,603,104		$	—	—	%	$	5,515,807		$	—	—	%	$	5,443,800		$	—	—	%
Interest-bearing	3,100,904			755		0.10	%	3,066,201			745		0.10	%	2,720,592			809		0.12	%
Savings and money market accounts	8,492,172			5,570		0.26	%	8,580,928			5,477		0.26	%	8,570,910			6,495		0.30	%
Certificates and other time deposits	2,335,620			2,846		0.48	%	2,333,859			3,009		0.52	%	2,720,929			1,712		0.25	%
Total deposits	19,531,800			9,171		0.19	%	19,496,795			9,231		0.19	%	19,456,231			9,016		0.18	%
Securities sold under agreements to repurchase	1,182,507			268		0.09	%	1,024,598			233		0.09	%	1,011,991			306		0.12	%
Wholesale borrowings	438,941			1,397		1.26	%	373,213			1,391		1.49	%	201,012			936		1.85	%
Long-term debt	320,387			3,783		4.68	%	324,431			3,893		4.81	%	324,424			3,899		4.77	%
Total interest-bearing liabilities	15,870,531			14,619		0.37	%	15,703,230			14,748		0.38	%	15,549,858			14,157		0.36	%
Other liabilities	302,255							303,887							358,390
Shareholders’ equity	2,807,886							2,768,352							2,661,546
Total liabilities and shareholders’ equity	$	24,583,776						$	24,291,276						$	24,013,594
Net yield on earning assets	$	21,804,243		$	197,644	3.60	%	$	21,367,496		$	199,666	3.75	%	$	20,276,825		$	207,079	4.05	%
Interest rate spread						3.50	%						3.65	%						3.97	%

⁽¹⁾ The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $4.1 million, $4.1 million, and $3.7 million for the three months ended September 30, 2014, June 30, 2014, and September 30, 2013, respectively.

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

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	Nine Months Ended
	September 30, 2014							September 30, 2013
(Dollars in thousands)	Average Balance			Interest (1)		Average Rate		Average Balance			Interest (1)		Average Rate
ASSETS
Cash and cash equivalents	$	712,490						$	875,890
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)	5,244,238			$	79,162	2.02	%	4,125,541			$	64,525	2.09	%
Obligations of states and political subdivisions (tax exempt)	761,461			26,100		4.58	%	655,257			24,702		5.04	%
Other securities and federal funds sold	587,622			17,185		3.91	%	488,005			13,618		3.73	%
Total investment securities and federal funds sold	6,593,321			122,447		2.48	%	5,268,803			102,845		2.61	%
Loans held for sale	11,517			302		3.51	%	16,860			461		3.66	%
Loans, including loss share receivable (2)	14,756,994			515,757		4.67	%	12,504,632			460,257		4.92	%
Total earning assets	21,361,832			638,506		4.00	%	17,790,295			563,563		4.24	%
Total allowance for loan losses	(141,766		)					(144,954		)
Other assets	2,405,097							2,111,427
Total assets	$	24,337,653						$	20,632,658
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	5,536,306		$	—	—	%	$	4,628,252		$	—	—%
Interest-bearing	3,071,220			2,236		0.10	%	2,128,055			1,784		0.11	%
Savings and money market accounts	8,589,882			16,605		0.26	%	7,549,165			18,279		0.32	%
Certificates and other time deposits	2,357,241			8,319		0.47	%	2,249,362			7,149		0.42	%
Total deposits	19,554,649			27,160		0.19	%	16,554,834			27,212		0.22	%
Securities sold under agreements to repurchase	1,031,483			697		0.09	%	949,105			949		0.13	%
Wholesale borrowings	363,422			3,917		1.44	%	191,970			2,955		2.06	%
Long-term debt	323,068			11,566		4.79	%	265,461			9,390		4.73	%
Total interest-bearing liabilities	15,736,316			43,340		0.37	%	13,333,118			40,506		0.41	%
Other liabilities	294,936							351,650
Shareholders’ equity	2,770,095							2,319,638
Total liabilities and shareholders’ equity	$	24,337,653						$	20,632,658
Net yield on earning assets	$	21,361,832		$	595,166	3.73	%	$	17,790,295		$	523,057	3.93	%
Interest rate spread						3.63	%						3.83	%

⁽¹⁾ The net yield on earning assets is calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal and/or state income taxes. As such, these tax-exempt securities typically yield lower returns than taxable securities. To provide more meaningful comparisons of net interest margins for all earning assets, net interest income on a taxable-equivalent basis is used in calculating net interest margin by increasing the interest earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under generally accepted accounting principles in the Consolidated Statements of Income. The taxable-equivalent adjustments to net interest income were $12.1 million and $10.3 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.

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

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Net Interest Income

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

To make it easier to compare results among several periods and the yields on various types of earning assets (some taxable, some not), net interest income is presented in this discussion on a TE basis. That is, interest on tax-free securities and tax-exempt loans has been restated as if such interest were taxed at the statutory federal income tax rate of 35% adjusted for the nondeductible portion of interest expense incurred to acquire the tax-free assets. Net interest income presented on a TE basis is a financial measure that is calculated and presented other than in accordance with GAAP and is widely used by financial services organizations. Therefore, Management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing net interest income-TE by average earning assets. As with net interest income-TE, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by noninterest-bearing liabilities and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

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

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

	Three Months Ended September 30,									Nine Months Ended September 30,
	2014 and 2013									2014 and 2013
	Increase (Decrease) In Interest Income/Expense									Increase (Decrease) In Interest Income/Expense
(In thousands)	Due to Volume			Due to Rate			Net			Due to Volume			Due to Rate			Net
INTEREST INCOME-TE
Investment securities and federal funds sold:
Taxable	$	2,314		$	(7	)	$	2,307		$	20,171		$	(1,967	)	$	18,204
Tax-exempt	762			(918		)	(156		)	3,770			(2,372		)	1,398
Loans held for sale	(8		)	(12		)	(20		)	(141		)	(18		)	(159		)
Loans	12,838			(23,942		)	(11,104		)	79,635			(24,135		)	55,500
Total interest income-TE	15,906			(24,879		)	(8,973		)	103,435			(28,492		)	74,943
INTEREST EXPENSE
Interest on deposits:
Interest bearing	104			(158		)	(54		)	711			(259		)	452
Savings and money market accounts	(59		)	(866		)	(925		)	2,314			(3,988		)	(1,674		)
Certificates and other time deposits	(273		)	1,407			1,134			355			815			1,170
Securities sold under agreements to repurchase	47			(85		)	(38		)	77			(329		)	(252		)
Wholesale borrowings	831			(370		)	461			2,047			(1,085		)	962
Long-term debt	(49		)	(67		)	(116		)	2,061			115			2,176
Total interest expense	601			(139		)	462			7,565			(4,731		)	2,834
Net interest income-TE	$	15,305		$	(24,740	)	$	(9,435	)	$	95,870		$	(23,761	)	$	72,109

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

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The following table in Figure 5 provides net interest income-TE and net interest margin totals for the three and nine months ended September 30, 2014 and 2013:

Figure 5. Net Interest Income and Net Interest Margin

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2014			2013			2014			2013
Net interest income	$	193,578		$	203,340		$	583,057		$	512,717
Tax equivalent adjustment	4,066			3,739			12,109			10,340
Net interest income-TE	197,644			207,079			595,166			523,057
Average earning assets	$	21,804,243		$	20,276,825		21,361,832			17,790,295
Net interest margin	3.60		%	4.05		%	3.73		%	3.93		%

For the three months ended September 30, 2014, net interest income-TE was $197.6 million, a decrease of $9.4 million or 4.56% from the year ago period. The net interest margin for the three months ended September 30, 2014 was 3.60%, 45 basis points lower than 4.05% for the same year ago quarter. The decrease in taxable equivalent net interest income was attributable to a decrease in originated and covered loan yields, partially offset by the benefit provided by an increase in average earning assets. Average earning assets increased by $1.5 billion or 7.53% from the three months ended September 30, 2014, compared to the same period in 2013. The increase in average earnings assets primarily reflected a $1.0 billion increase in average total loans and a $487.0 million in average investments. The average yield on earning assets decreased from 4.33% in the third quarter of 2013 to 3.86% in the third quarter of 2014 primarily from decreased yields on originated and covered loans. Originated loan yields were down 31 basis points to 3.55% from the year ago quarter due to competitive pricing pressures in a low rate environment and repayments on higher yielding loans. The yield on covered loans was down 153 basis points from the year ago quarter due to a $3.0 million increase in amortization of the loss share receivable in the three months ended September 30, 2014, which is the result of an improved outlook on the covered loan portfolio. The yield on acquired loans was up 36 basis points to 8.03%, partially offsetting the decreases in the yields of the originated and covered loan portfolios.

Quarterly average balances for investment securities were up from the year ago quarter increasing investment interest income by $3.1 million, while the lower interest rate environment resulted in a decrease in investment interest income of $0.9 million year over year. The higher rates paid on interest bearing deposits during the current quarter resulted in a net increase of $0.2 million in interest expense for the three months ended September 30, 2014, compared to the same prior year period. Higher quarterly average wholesale borrowings and lower rates during the third quarter of 2014 caused a net increase in interest expense of $0.5 million compared to the same year ago period. The cost of funds for the year as a percentage of average earning assets remained flat at approximately 0.07% for both the three months ended September 30, 2014and September 30, 2013.

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Noninterest Income

Excluding investment securities transactions, noninterest income for the three and nine months ended September 30, 2014 totaled $69.7 million and $209.4 million, respectively. Noninterest income remained relatively flat compared with the same three month period of 2013 and increased $11.6 million, or 5.88%, compared to the nine month period ended September 30, 2013. Noninterest income as a percentage of net revenue (net interest income-TE plus noninterest income, less securities transactions) was 26.08% for the three months ended September 30, 2014, up slightly from 25.56% in the year ago quarter. For the nine months ended September 30, 2014, noninterest income as a percentage of net revenue was 26.03%, down from 27.73% for the same period one year ago. Significant changes in noninterest income for the three and nine months ended September 30, 2014 are discussed immediately after Figure 6. Unless otherwise noted, the Citizens acquisition is contributing to the year over year variances for the nine months ended September 30.

Figure 6. Noninterest Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2014		2013		2014		2013
Trust department income	$	10,300	$	9,608	$	30,118	$	24,515
Service charges on deposits	18,684		22,146		53,860		55,315
Credit card fees	13,754		13,588		39,361		38,128
ATM and other service fees	6,182		5,216		17,998		13,496
Bank owned life insurance income	4,218		4,351		11,840		12,889
Investment services and life insurance	3,606		3,403		10,974		9,247
Investment securities gains/(losses), net	14		—		150		(2,803		)
Loan sales and servicing income	4,740		3,644		12,932		19,492
Other operating income	8,235		9,134		32,331		27,644
	$	69,733	$	71,090	$	209,564	$	197,923

Bank owned life insurance income for the nine months ended September 30, 2014decreased$1.0 million, or 8.14%, from the same year ago period as a result of a death benefit received in the first quarter of 2013.

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

Loan sales and servicing income includes amortization and impairment or recovery of MSRs, changes in the fair value value of residential mortgage loans held for sale, as well as changes in the value of derivatives used to hedge those loans held for sale. Total income increased year over year by $1.1 million, or 30.08%, in the three months ended September 30, 2014 and decreased $6.6 million, or 33.65%, in the nine months ended September 30, 2014. The Corporation serviced for third parties approximately $2.6 billion of residential mortgage loans at September 30, 2014 and $2.7 billion at September 30, 2013. Loan servicing fees were $1.6 million and $4.9 million in the three and nine months ended September 30, 2014, respectively, relatively flat to the same year ago periods. Loan servicing fees are driven by overall mortgage production, which was relatively flat on a year over year and quarter over year ago quarter comparison.

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Other operating income decreased $0.9 million, or 9.84%, and increased$4.7 million, or 16.95%, for the three and nine months ended September 30, 2014, respectively, compared to the three and nine months ended September 30, 2013. Contributing to the quarter over quarter decrease were net losses of $1.2 million on covered loan resolutions, offset by $1.3 million in recoveries on acquired loans that were charged off prior to acquisition. Included in the three and nine months ended September 30, 2014 was a $1.2 million net loss and a $4.5 million net gain on covered loan resolutions, respectively, compared to a $1.8 million net gain and $7.8 million net gain for the three and nine months ended September 30, 2013, respectively. Gains or losses on covered loan payoffs represent the difference between the cash received on the paid-off loans and the Corporation's recorded investment of such loans, less any remaining associated loss share receivable. Included in the three and nine months ended September 30, 2014 were recoveries on acquired loans that were charged off prior to acquisition of $1.3 million and $5.5 million, respectively. Partially offsetting the current year to date increase in other operating income was approximately $4.0 million of costs associated with branch closures.

Noninterest Expenses

Noninterest expenses for the three and nine months ended September 30, 2014 totaled $163.1 million and $499.9 million, respectively, compared with $210.6 million and $505.6 million, respectively, in the same periods one year ago. The quarter over quarter decrease of $47.5 million, or 22.53%, and the year over year decrease of $5.8 million, or 1.14%, are discussed immediately after figure 7. Unless otherwise noted, the Citizens acquisition is contributing to the year over year variances for the nine months ended September 30.

Figure 7. Noninterest Expense

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2014		2013		2014		2013
Salaries and wages	$	71,769	$	79,369	$	213,330	$	211,440
Pension and employee benefits	18,824		18,021		55,741		48,955
Net occupancy expense	13,887		13,816		45,248		35,444
Equipment expense	12,188		11,040		36,366		28,698
Taxes, other than federal income taxes	1,286		2,785		6,639		7,599
Stationery, supplies and postage	3,723		3,801		11,820		9,304
Bankcard, loan processing, and other costs	11,151		40,786		33,795		61,043
Advertising	3,942		4,432		11,261		10,246
Professional services	5,270		9,768		15,373		32,322
Telephone	2,831		3,326		8,596		7,231
Amortization of intangibles	2,933		2,972		8,802		5,700
FDIC insurance expense	2,988		4,925		14,492		12,601
Other operating expense	12,353		15,558		38,415		35,050
	$	163,145	$	210,599	$	499,878	$	505,633

Total salaries and wages expense decreased$7.6 million, or 9.58%, as compared to the third quarter 2013 and increased $8.7 million, or 3.33%, as compared to the nine months ended September 30, 2013. The number of full time equivalent employees were 4,302 and 4,666 as of September 30, 2014 and September 30, 2013, respectively. Included in expense in the three and nine months ended September 30, 2013 was severance and retention expense associated with the Citizens acquisition of $3.2 million and $21.6 million, respectively.

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Professional services expense decreased $4.5 million, or 46.05%, as compared to the third quarter 2013, and decreased $16.9 million, as compared to the nine months ended September 30, 2013. Included in expense in the three and nine months ended September 30, 2013 was professional and legal fees related to the Citizens acquisition of $4.6 million and $17.2 million, respectively.

FDIC insurance expense decreased $1.9 million, or 39.33%, as compared to the third quarter 2013, as a result of the refinement of the accrual in the current period.

Income Taxes

Income tax expense was $27.1 million and $16.7 million for the three months ended September 30, 2014 and 2013, respectively. The effective income tax rate for the three months ended September 30, 2014 was 29.76% compared to 29.13% for the three months ended September 30, 2013.

Income tax expense was $76.9 million and $54.9 million for the nine months ended September 30, 2014 and 2013, respectively. The effective income tax rate for the nine months ended September 30, 2014 was 30.30% compared to 30.25% for the nine months ended September 30, 2013.

LINE OF BUSINESS RESULTS

Line of business results are presented in the table below. A description of each business line, important financial performance data and the methodologies used to measure financial performance are presented in Note 7 (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 nine months endedSeptember 30, 2014 and 2013.

Figure 8. Line of Business Results

	Commercial						Retail				Wealth				Other						FirstMerit Consolidated
September 30, 2014	QTD			YTD			QTD		YTD		QTD		YTD		QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income (loss)-TE	$	106,417		$	320,815		$	95,710	$	283,839	$	5,119	$	14,596	$	(9,602	)	$	(24,084	)	$	197,644	$	595,166
Provision/(recapture) for loan losses	(7,642		)	(7,476		)	7,627		25,149		362		713		8,845			20,596			9,192		38,982
Noninterest income	21,096			69,083			28,270		80,651		14,108		41,624		6,259			18,206			69,733		209,564
Noninterest expense	58,221			181,435			85,954		269,331		12,777		37,874		6,193			11,238			163,145		499,878
Net income (loss)	49,211			137,995			19,759		45,506		3,956		11,460		(9,028		)	(18,089		)	63,898		176,872
AVERAGES:
Assets	9,407,684			9,225,407			5,700,960		5,565,047		289,549		263,513		9,185,583			9,283,686			24,583,776		24,337,653
Loans	9,409,391			9,217,146			5,394,734		5,226,852		278,930		252,694		65,045			60,302			15,148,100		14,756,994
Earnings assets	9,715,918			9,497,907			5,422,311		5,248,606		278,930		252,694		6,387,084			6,362,625			21,804,243		21,361,832
Deposits	6,777,220			6,656,638			11,335,465		11,601,540		1,139,703		1,066,981		279,412			229,490			19,531,800		19,554,649
Economic Capital	795,389			719,751			373,676		347,990		59,723		58,787		1,579,098			1,643,567			2,807,886		2,770,095

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	Commercial					Retail				Wealth						Other						FirstMerit Consolidated
September 30, 2013	QTD			YTD		QTD		YTD		QTD			YTD			QTD			YTD			QTD		YTD
(In thousands)
OPERATIONS:
Net interest income (loss)-TE	$	118,392		$	303,160	$	103,046	$	248,704	$	4,286		$	12,727		$	(18,645	)	$	(41,534	)	$	207,079	$	523,057
Provision/(recapture) for loan losses	(27		)	6,866		905		7,071		(736		)	(570		)	6,237			10,267			6,379		23,634
Noninterest income	21,364			60,980		30,723		88,916		13,216			34,347			5,787			13,680			71,090		197,923
Noninterest expense	57,033			151,587		96,153		235,518		14,650			38,698			42,763			79,830			210,599		505,633
Net income (loss)	53,136			131,704		23,910		61,985		2,090			5,469			(38,421		)	(72,648		)	40,715		126,510
AVERAGES:
Assets	8,685,333			8,020,824		5,659,553		4,646,817		266,028			255,538			9,402,680			7,709,479			24,013,594		20,632,658
Loans	8,557,744			7,922,472		5,256,850		4,289,808		224,400			225,414			67,843			66,938			14,106,837		12,504,632
Earnings assets	8,754,270			8,095,745		5,283,017		4,315,593		224,433			225,444			6,015,105			5,153,513			20,276,825		17,790,295
Deposits	6,137,112			5,014,893		12,282,098		10,552,382		834,764			797,622			202,257			189,937			19,456,231		16,554,834
Economic Capital	775,389			600,102		293,264		250,940		83,456			69,591			1,509,437			1,399,005			2,661,546		2,319,638

The commercial segment's net income resulted in a decrease of $3.9 million for the quarter ended September 30, 2014 to $49.2 million, from $53.1 million for the quarter ended September 30, 2013. TE adjusted net interest income for the commercial segment totaled $106.4 million for the three months ended September 30, 2014 compared to $118.4 million for the three months ended September 30, 2013, a decrease of $12.0 million, or 10.11%. This decrease is a result of margin compression in the commercial portfolio of acquired and covered loans, partially offset by higher commercial loan balances. Recapture of loan losses for the commercial segment was $7.6 million for the three months ended September 30, 2014 compared to an immaterial amount of provision for loan losses for the three months ended September 30, 2013. Net charge-offs increased $3.3 million to $2.8 million for the three months ended September 30, 2014, compared to the same period in 2013. Noninterest income stayed relatively flat at $21.1 million for the three months ended September 30, 2014 compared to $21.4 million for the same period in 2013. Noninterest expense for the commercial segment was $58.2 million for the three months ended September 30, 2014 compared to $57.0 million for the same period of 2013 attributable mainly to increased personnel expenses.

The retail segment's net income resulted in a decrease of $4.2 million for the three months ended September 30, 2014 to $19.8 million, compared to three months ended September 30, 2013. TE adjusted net interest income totaled $95.7 million for the three months ended September 30, 2014 compared to $103.0 million for the three months ended September 30, 2013, a decrease of $7.3 million, or 7.12%, attributable primarily to margin compression from lower yields and declines in the acquired loan portfolio. Provision for loan losses totaled $7.6 million for the three months ended September 30, 2014 compared to $0.9 million for the three months ended September 30, 2013, an increase of $6.7 million, attributable to provision expenses for loans acquired in the Citizens' acquisition. Net charge-offs decreased $0.5 million to $3.2 million for the three months ended September 30, 2014, compared to the same period in 2013. Noninterest income was $28.3 million for the three months ended September 30, 2014 compared to $30.7 million for the three months ended September 30, 2013, a decrease of $2.5 million, or 7.98%, attributable to lower service charges on deposits due to lower non-sufficient funds and overdraft incidents, driven by a change from the high-to-low posting order. Noninterest expense decreased $10.2 million, or 10.61%, to $86.0 million for the three months ended September 30, 2014 compared to $96.2 million for the three months ended September 30, 2013. This reduction was driven mainly by lower personnel expenses from branch consolidations and other staffing initiatives, lower

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occupancy expenses from branch consolidations, lower depreciation and timing of real estate taxes, and lower operating losses in the mortgage division.

The wealth segment's net income resulted in an increase of $1.9 million for the three months ended September 30, 2014 to $4.0 million, compared to three months ended September 30, 2013, an increase of 89.3%. Net interest income totaled $5.1 million for the three months ended September 30, 2014 compared to $4.3 million for the three months ended September 30, 2013, an increase of $0.8 million, or 19.44%, attributable to an increase in loan and deposit balances. Provision increased by $1.1 million from the same period in 2013. Noninterest income was $14.1 million for the three months ended September 30, 2014 compared to $13.2 million for the three months ended September 30, 2013, an increase of $0.9 million, or 6.75%, attributable to greater brokerage and trust fees. Noninterest expense resulted in a decrease of $1.9 million, or 12.78%, to $12.8 million for the three months ended September 30, 2014 compared to $14.7 million for the three months ended September 30, 2013, attributable to lower processing expenses as a result of systems consolidation.

Activities that are not directly attributable to one of the primary lines of business are included in the Other segment. Included in this category are the Parent Company, community development operations, treasury group, including the securities portfolio, wholesale funding and asset liability management activities, inter-company eliminations, acquisition related expenses, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business. The Other segment recorded a net loss of $9.0 million for the three months ended September 30, 2014, an improvement of

$29.4 million compared to the three months ended September 30, 2013 due to reduced expenses related to the Citizens acquisition.

FINANCIAL CONDITION

Investment Securities

At September 30, 2014, the carrying amount of investment securities were $6.6 billion compared to $6.4 billion at December 31, 2013 and $6.3 billion at September 30, 2013 and are comprised of the following:

Figure 9. Investment Securities

	September 30, 2014				December 31, 2013				September 30, 2013
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair value
Available-for-sale securities (1)	$	3,494,793	$	3,462,990	$	3,329,117	$	3,273,174	$	3,286,109	$	3,256,259
Held to maturity securities (2)	3,002,262		2,947,172		2,935,688		2,824,240		2,749,934		2,658,433
Other securities (3)	148,421		148,421		180,803		180,803		270,369		270,369
Total investment securities	$	6,645,476	$	6,558,583	$	6,445,608	$	6,278,217	$	6,306,412	$	6,185,061

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

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

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

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

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The Corporation's available-for-sale investment policy is to invest in securities viewed to have low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations, MBS, corporate bonds, and CLOs. During the second quarter of 2013, the Bank began purchasing CLOs into its available-for-sale portfolio. Approximately $290.4 million of CLOs are held in the available-for-sale portfolio as of September 30, 2014. 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. The new Volcker regulations, as originally adopted, may affect the Corporation's ability to hold these CLOs. Management believes that its holdings of CLOs are not ownership interests in a covered fund prohibited by the Volcker regulations and, therefore, expects to be able to hold these investments until their stated maturities with no restriction.

The investment securities portfolio was in a net unrealized loss position of $31.8 million at September 30, 2014, compared to a net unrealized loss position of $55.9 million at December 31, 2013 and a net unrealized loss position of $29.9 million atSeptember 30, 2013. Gross unrealized losses were $64.6 million as of September 30, 2014, compared to $90.2 million and $70.5 million at December 31, 2013andSeptember 30, 2013, respectively. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility, and liquidity conditions. The fair value of investment securities generally decreases when interest rates increase and vice versa. In addition, the fair value generally decreases when credit spreads widen and vice versa. The gross unrealized loss positions as of September 30, 2014 were primarily related to MBS issued by government agencies, CLOs, and corporate bonds. The fair values of the agency MBSs have been impacted by the rising interest rate environment relative to when they were purchased. The fair value of the CLOs have been impacted by increased supply which has widened spreads. The fair value of the corporate bonds have been impacted by the market conditions which have caused risk premiums to increase.

The Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Management believes the Corporation will fully recover the cost of the agency MBSs, CLOs, and corporate debt securities in an unrealized loss position at September 30, 2014, and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, Management concluded that these securities were not other-than-temporarily impaired at September 30, 2014 and has recognized the total amount of the impairment in OCI, net of tax.

Further detail of the composition of the securities portfolio and discussion of the results of the most recent OTTI assessment are in Note 2 (Investment Securities) in the notes to the consolidated financial statements.

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Loans

Total loans held at September 30, 2014 were $15.2 billion compared to $14.3 billion at December 31, 2013 and $14.3 billion at September 30, 2013. Total loans as of September 30, 2014 include $2.7 billion in acquired loans and $425.2 million in covered loans, including a loss share receivable of $30.7 million. Acquired loans resulted from the acquisition of Citizens in the second quarter of 2013. Covered loans resulted from the 2010 FDIC-assisted acquisitions of George Washington and Midwest. These acquired and covered loans were recorded at estimated fair value at the date of acquisition with no carryover of the related ALL. The major categories of loans outstanding and concentration distributions are presented in the following tables, segregated between originated, acquired, and covered loans.

Figure 10. Period End Loans by Product Type

(Dollars in thousands)	As of September 30, 2014
	Originated Loans				Acquired Loans (1)				Covered Loans (2)				Total Loans
	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	7,626,166		63.2%	$	1,272,244		46.3%	$	262,319		66.5%	$	9,160,729		60.2%
Residential mortgages	605,998			5.0%	410,065			14.9%	43,672			11.1%	1,059,735			7.0%
Installment	2,277,533			18.9%	809,820			29.5%	5,148			1.3%	3,092,501			20.3%
Home equity lines	1,062,013			8.8%	252,975			9.2%	83,278			21.1%	1,398,266			9.2%
Credit card	160,113			1.3%	—			—%	—			—%	160,113			1.1%
Leases	339,936			2.8%	—			—%	—			—%	339,936			2.2%
Subtotal	12,071,759			100.0%	2,745,104			100.0%	394,417			100.0%	15,211,280			100.0%
Loss share receivable	—			n/m	—			n/m	30,746			n/m	30,746			n/m
Total Loans	12,071,759			n/m	2,745,104			n/m	425,163			n/m	15,242,026			n/m
Allowance for loan losses	(90,883		)	n/m	(6,206		)	n/m	(42,988		)	n/m	(140,077		)	n/m
Net Loans	$	11,980,876		n/m	$	2,738,898		n/m	$	382,175		n/m	$	15,101,949		n/m

(Dollars in thousands)	As of December 31, 2013
	Originated Loans				Acquired Loans (1)				Covered Loans (2)				Total Loans
	Amount			Percentage	Amount			Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	6,648,279		65.1%	$	1,725,970		49.4%	$	375,860		70.9%	$	8,750,109		61.5%
Residential mortgages	529,253			5.2%	470,652			13.5%	50,679			9.6%	1,050,584			7.4%
Installment	1,727,925			16.9%	1,004,569			28.7%	6,162			1.2%	2,738,656			19.2%
Home equity lines	920,066			9.0%	294,424			8.4%	97,442			18.4%	1,311,932			9.2%
Credit card	148,313			1.5%	—			—%	—			—%	148,313			1.0%
Leases	239,551			2.3%	—			—%	—			—%	239,551			1.7%
Subtotal	10,213,387			100.0%	3,495,615			100.0%	530,143			100.0%	14,239,145			100.0%
Loss share receivable	—			n/m	—			n/m	61,827			n/m	61,827			n/m
Total Loans	10,213,387			n/m	3,495,615			n/m	591,970			n/m	14,300,972			n/m
Allowance for loan losses	(96,484		)	n/m	(741		)	n/m	(44,027		)	n/m	(141,252		)	n/m
Net Loans	$	10,116,903		n/m	$	3,494,874		n/m	$	547,943		n/m	$	14,159,720		n/m

106

(Dollars in thousands)	As of September 30, 2013
	Originated Loans				Acquired Loans (1)			Covered Loans (2)				Total Loans
	Amount			Percentage	Amount		Percentage	Amount			Percentage	Amount			Percentage
Commercial	$	6,420,369		65.6%	$	1,963,746	51.4%	$	422,225		72.3%	$	8,806,340		62.1%
Residential mortgages	487,283			5.0%	466,594		12.2%	52,796			9.0%	1,006,673			7.1%
Installment	1,647,095			16.8%	1,080,298		28.3%	6,361			1.1%	2,733,754			19.3%
Home equity lines	889,372			9.1%	306,783		8.0%	102,908			17.6%	1,299,063			9.2%
Credit card	145,113			1.5%	—		—%	—			—%	145,113			1.0%
Leases	199,907			2.0%	—		—%	—			—%	199,907			1.4%
Subtotal	9,789,139			100.0%	3,817,421		100.0%	584,290			100.0%	14,190,850			100.0%
Loss share receivable	—			n/m	—		n/m	69,986			n/m	69,986			n/m
Total Loans	9,789,139			n/m	3,817,421		n/m	654,276			n/m	14,260,836			n/m
Allowance for loan losses	(98,291		)	n/m	—		n/m	(45,544		)	n/m	(143,835		)	n/m
Net Loans	$	9,690,848		n/m	$	3,817,421	n/m	$	608,732		n/m	$	14,117,001		n/m

⁽¹⁾ Loans acquired from Citizens.

⁽²⁾ Loans which are covered by loss sharing agreements with the FDIC providing considerable protection against credit risk.

n/m = Not Meaningful

Originated Loans

Total originated loans increased from December 31, 2013by$1.9 billion, or 18.20%, and increased from September 30, 2013 by $2.3 billion, or 23.32%. This increase was driven primarily by higher commercial loans, which increased 14.71%from December 31, 2013and18.78% from September 30, 2013 due to the Corporation's expansion into the Chicago, Illinois, Michigan and Wisconsin areas. The growth in commercial loans was also attributable to increases in asset-based lending as well as new business within the specialty lending group such as the capital markets, healthcare, and leasing lines of business. The leasing line of business has seen considerable increase in activity. As of September 30, 2014, leases totaled $339.9 million compared to $239.6 million and $199.9 million at December 31, 2013 and September 30, 2013, respectively, resulting in increases of $100.4 million, or 41.91%, from December 31, 2013 and $140.0 million, or 70.05%, from September 30, 2013.

Residential mortgage loans are originated and then sold into the secondary market or held in portfolio. Total residential mortgage loan balances increased from December 31, 2013 by $76.7 million, or 14.50%, and increased from September 30, 2013 by $118.7 million, or 24.36%, 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, 2013 by $141.9 million, or 15.43%, and increased from September 30, 2013 by $172.6 million, or 19.41%. Installment loans increased from December 31, 2013 by $549.6 million, or 31.81%, and increased from September 30, 2013 by $630.4 million, or 38.28%.

The Corporation has approximately $4.9 billion of loans secured by real estate. Approximately 86.74% of the property underlying these loans is located within the Corporation's primary market area of Ohio, Western Pennsylvania, and Chicago, Illinois.

107

Acquired Loans

Acquired loans are those purchased in the Citizens' acquisition during the second quarter of 2013. Total acquired loans was $2.7 billion as of September 30, 2014, a decrease from December 31, 2013 and September 30, 2013 of $750.5 million, or 21.47%, and $1.1 billion, or 28.09%, respectively. The acquired loan portfolio will continue to decline, through payoffs, charge-offs, or terminations, unless the Corporation acquires additional loans in the future.

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

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

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

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. Total covered loans, including the loss share receivable, were $425.2 million as of September 30, 2014, a decrease from December 31, 2013 and September 30, 2013 of $166.8 million, or 28.18%, and $229.1 million, or 35.02%, 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.

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

108

Allowance for Loan Losses and Reserve For Unfunded Lending Commitments

Allowance for Originated Loan Losses

The Corporation maintains what Management believes is an adequate originated ALL. The Corporation and the Bank regularly analyze the adequacy of their allowance through ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio. See Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements in this Form 10-Q for further information regarding the Corporation's credit policies and practices.

The Corporation uses a vendor-based loss migration model to forecast losses for commercial loans. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three years loss rates within two different scenarios. One scenario uses five-year historical performance data while the other one uses two-year historical data. The calculated rate is the average cumulative expected 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 September 30, 2014, the allowance for originated loan losses was $90.9 million, or 0.75% of originated loans outstanding, compared to $96.5 million, or 0.94%, and $98.3 million, or 1.00%, at December 31, 2013 and September 30, 2013, respectively. The allowance equaled 231.13% of nonperforming loans at September 30, 2014 compared to 228.62% and 276.19% at December 31, 2013 and September 30, 2013. The additional reserves related to qualitative risk factors totaled $49.6 million at September 30, 2014 compared to $42.9 million and $35.6 million at December 31, 2013 and September 30, 2013, respectively. Nonperforming loans have decreased by $2.9 million or 6.83% when compared to December 31, 2013 but increased by $3.7 million, or 10.49%, when compared to September 30, 2013.

Net charge-offs on originated loans were $5.9 million and 0.20% of average originated loans outstanding during the three months ended September 30, 2014 compared to $2.9 million and 0.12% of average originated loans outstanding during the three months ended September 30, 2013. Losses are charged against the ALL as soon as they are identified.

The reserve for unfunded lending commitments at September 30, 2014, December 31, 2013, and September 30, 2013 was $7.0 million, $7.9 million, and $8.5 million, respectively. Binding unfunded lending commitments include items such as letters of credit, financial guarantees and binding unfunded loan commitments. The allowance for credit losses, which includes both the allowance for originated loan losses and the reserve for unfunded lending commitments, amounted to $97.8 million, $104.4 million, and $106.8 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

109

Figure 11. Summary of the Allowance for Credit Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
(Dollars in thousands)
Allowance for Originated Loan Losses-beginning of period	$	91,950		$	98,645		$	96,484		$	98,942
Originated loans charged off:
Commercial	4,046			1,222			12,256			6,644
Mortgage	91			501			1,484			1,185
Installment	4,323			3,582			12,983			11,788
Home equity	1,361			1,396			3,403			3,835
Credit cards	778			1,367			3,544			4,229
Leases	—			—			—			1,237
Overdrafts	811			447			2,048			1,342
Total charge-offs	11,410			8,515			35,718			30,260
Originated Recoveries:
Commercial	1,287			1,724			2,720			6,731
Mortgage	114			39			219			133
Installment	2,729			2,613			8,195			7,810
Home equity	708			704			2,227			1,537
Credit cards	403			438			1,260			1,420
Manufactured housing	54			11			78			49
Leases	2			11			374			100
Overdrafts	184			98			535			347
Total recoveries	5,481			5,638			15,608			18,127
Originated net charge-offs	5,929			2,877			20,110			12,133
Provision for originated loan losses	4,862			2,523			14,509			11,482
Allowance for originated loan losses-end of period	$	90,883		$	98,291		$	90,883		$	98,291
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	7,107		$	8,114		$	7,907		$	5,433
Provision for/(relief of) credit losses	(141		)	379			(941		)	3,060
Balance at end of period	6,966			8,493			6,966			8,493
Allowance for credit losses (1)	$	97,849		$	106,784		$	97,849		$	106,784
Average originated loans outstanding	11,814,314			9,377,826			11,123,269			8,999,316
Ratio to average originated loans:
Originated net charge-offs	0.20		%	0.12		%	0.24		%	0.18		%
Provision for originated loan losses	0.16		%	0.11		%	0.17		%	0.17		%
Originated loans outstanding-end of period	12,071,759			9,789,139			12,071,759			9,789,139
Allowance for originated loan losses:
As a percentage of period-end originated loans	0.75		%	1.00		%	0.75		%	1.00		%
As a percentage of nonperforming originated loans	231.13		%	276.19		%	231.13		%	276.19		%
As a multiple of originated net charge-offs	3.86			8.61			3.38			6.06
Allowance for credit losses:
As a percentage of period-end originated loans	0.81		%	1.09		%	0.81		%	1.09		%
As a percentage of nonperforming originated loans	248.85		%	300.06		%	248.85		%	300.06		%
As a multiple of annualized net charge-offs	4.16			9.36			3.64			6.58

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

110

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

	As of September 30, 2014
	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	$	11,155	$	22,597		$	—	$	23,575	$	7,624	$	912	$	26,108	$	91,971
Allowance	1,399		1,620			—		1,086		190		322		1,435		6,052
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	42,653		695			8,929										52,277
Grade 1 allowance	2		—			1										3
Grade 2 loan balance	214,307		3,523			12,525										230,355
Grade 2 allowance	34		(6		)	3										31
Grade 3 loan balance	1,164,149		322,605			58,157										1,544,911
Grade 3 allowance	749		194			51										994
Grade 4 loan balance	3,457,948		2,174,284			258,880										5,891,112
Grade 4 allowance	23,629		6,457			637										30,723
Grade 5 (Special Mention) loan balance	119,252		38,769			1,233										159,254
Grade 5 allowance	7,201		641			32										7,874
Grade 6 (Substandard) loan balance	29,856		24,373			212										54,441
Grade 6 allowance	4,111		1,038			12										5,161
Grade 7 (Doubtful) loan balance	—		—			—										—
Grade 7 allowance	—		—			—										—
Consumer loans based on payment status:
Current loan balances								2,234,694		1,051,401		157,446		564,585		4,008,126
Current loans allowance								10,463		15,377		5,061		2,033		32,934
30 days past due loan balance								11,698		1,863		709		8,430		22,700
30 days past due allowance								783		896		541		125		2,345
60 days past due loan balance								3,447		483		400		1,815		6,145
60 days past due allowance								623		466		488		123		1,700
90+ days past due loan balance								4,119		642		646		5,060		10,467
90+ days past due allowance								705		969		1,100		292		3,066
Total loans	$	5,039,320	$	2,586,846		$	339,936	$	2,277,533	$	1,062,013	$	160,113	$	605,998	$	12,071,759
Total Allowance for Loan Losses	$	37,125	$	9,944		$	736	$	13,660	$	17,898	$	7,512	$	4,008	$	90,883

111

	As of December 31, 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	$	8,053	$	21,522	$	—	$	27,285	$	6,726	$	1,112	$	23,066	$	87,764
Allowance	3,235		229		—		1,014		223		312		1,133		6,146
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	34,909		241		9,271										44,421
Grade 1 allowance	10		—		2										12
Grade 2 loan balance	108,709		3,730		2,900										115,339
Grade 2 allowance	80		3		3										86
Grade 3 loan balance	802,624		340,782		54,446										1,197,852
Grade 3 allowance	869		421		85										1,375
Grade 4 loan balance	3,083,312		2,057,357		167,022										5,307,691
Grade 4 allowance	28,114		9,255		732										38,101
Grade 5 (Special Mention) loan balance	70,978		34,687		5,750										111,415
Grade 5 allowance	5,385		1,023		246										6,654
Grade 6 (Substandard) loan balance	30,982		50,393		162										81,537
Grade 6 allowance	5,288		4,144		13										9,445
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,678,155		909,799		145,332		481,338		3,214,624
Current loans allowance							7,964		10,063		5,123		2,403		25,553
30 days past due loan balance							14,524		1,683		696		16,335		33,238
30 days past due allowance							1,044		685		541		482		2,752
60 days past due loan balance							3,729		906		449		1,276		6,360
60 days past due allowance							920		710		542		221		2,393
90+ days past due loan balance							4,232		952		724		7,238		13,146
90+ days past due allowance							993		1,219		1,222		533		3,967
Total loans	$	4,139,567	$	2,508,712	$	239,551	$	1,727,925	$	920,066	$	148,313	$	529,253	$	10,213,387
Total Allowance for Loan Losses	$	42,981	$	15,075	$	1,081	$	11,935	$	12,900	$	7,740	$	4,772	$	96,484

112

	As of September 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	$	7,476	$	20,713	$	—	$	30,608	$	6,787	$	1,253	$	23,064	$	89,901
Allowance	1,336		488		—		552		197		261		1,302		4,136
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance	32,144		1,216		9,932										43,292
Grade 1 allowance	5		—		3										8
Grade 2 loan balance	82,906		3,711		3,173										89,790
Grade 2 allowance	52		4		3										59
Grade 3 loan balance	867,186		395,959		29,631										1,292,776
Grade 3 allowance	987		521		47										1,555
Grade 4 loan balance	2,795,959		2,061,911		152,778										5,010,648
Grade 4 allowance	34,423		11,348		722										46,493
Grade 5 (Special Mention) loan balance	47,376		30,269		3,325										80,970
Grade 5 allowance	2,190		937		152										3,279
Grade 6 (Substandard) loan balance	31,048		42,495		1,068										74,611
Grade 6 allowance	4,185		4,555		92										8,832
Grade 7 (Doubtful) loan balance	—		—		—										—
Grade 7 allowance	—		—		—										—
Consumer loans based on payment status:
Current loan balances							1,599,473		879,987		142,064		444,069		3,065,593
Current loans allowance							7,295		9,755		5,059		2,481		24,590
30 days past due loan balance							8,917		995		731		11,028		21,671
30 days past due allowance							680		536		564		407		2,187
60 days past due loan balance							3,027		487		383		1,984		5,881
60 days past due allowance							693		571		485		512		2,261
90+ days past due loan balance							5,070		1,116		682		7,138		14,006
90+ days past due allowance							1,257		1,828		1,137		669		4,891
Total loans	$	3,864,095	$	2,556,274	$	199,907	$	1,647,095	$	889,372	$	145,113	$	487,283	$	9,789,139
Total Allowance for Loan Losses	$	43,178	$	17,853	$	1,019	$	10,477	$	12,887	$	7,506	$	5,371	$	98,291

113

Allowance for Acquired Loan Losses

An ALL for nonimpaired acquired loans is estimated using a methodology similar to that used for originated loans, that is, based on a specific reserve analysis for loans individually evaluated for impairment and based on historical loss rates for loans collectively evaluated for impairment. If the computed allowance is greater than the remaining fair value discount, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of September 30, 2014, the computed allowance was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was required.

Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loan's discount is depleted, charge-offs and actual losses are applied against the ALL. During the three months ended September 30, 2014, provision, equal to net charge-offs, of $3.2 million was recorded. Charge-offs were mainly related to consumer loans that were written off in accordance with the Corporation's credit policies based on a predetermined number of days past due.

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

If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized in the current period by an increase in the acquired ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established acquired ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool.

During the nine months ended September 30, 2014, provision for acquired impaired loan losses of $1.2 million was recognized resulting in an allowance for acquired impaired loan losses of $6.2 million as of September 30, 2014.

Allowance for Covered Loan Losses

The ALL 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. Additionally, the Corporation elected to account for all covered loans as impaired except for those loans acquired with revolving privileges, which are outside the scope of impaired loan accounting, and, therefore, are accounted for as covered

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nonimpaired loans. As of September 30, 2014, the computed allowance was less than the remaining fair value discount, therefore, no allowance for covered nonimpaired loans was recorded.

The allowance for covered impaired for loan losses was $43.0 million, $44.0 million, and $45.5 million as of September 30, 2014, December 31, 2013, and September 30, 2013, respectively. During the three months ended September 30, 2014, $2.8 million of losses on covered impaired loans were recognized with an offsetting increase of $2.9 million to the loss share receivable. The net recapture from the impaired covered portfolio was $0.1 million in the three months ended September 30, 2014 compared to a net provision of $1.8 million in the three months ended September 30, 2013.

Asset Quality (excluding acquired loans and covered assets)

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

Making a loan to earn an interest spread inherently includes taking the risk of not being repaid. Successful management of credit risk requires making good underwriting decisions, carefully administering the loan portfolio and diligently collecting delinquent accounts.

The Corporation's Credit Policy Division manages credit risk by establishing common credit policies for its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and loan operations services, and overseeing their loan workouts.

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

Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the notes to the consolidated financial statements in this Form 10-Q, provide detailed information regarding the Corporation's credit policies and practices and the credit-risk grading process for commercial loans.

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Nonperforming Loans are defined as follows:

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

• Restructured loans on which, due to a borrower experiencing financial difficulties or expected to experience difficulties in the near term, 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 estateacquired through foreclosure in satisfaction of a loan.

Figure 13. Asset Quality

(Dollars in thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Nonperforming originated loans:
Restructured nonaccrual loans:
Commercial loans	$	5,816		$	7,297		$	6,917
Consumer loans	11,472			11,388			11,790
Total restructured loans	17,288			18,685			18,707
Other nonaccrual loans:
Commercial loans	16,531			18,377			12,223
Consumer loans	5,502			5,141			4,658
Total nonaccrual loans	22,033			23,518			16,881
Total nonperforming originated loans	39,321			42,203			35,588
Other real estate, excluding covered assets	23,798			18,680			19,838
Total nonperforming assets	$	63,119		$	60,883		$	55,426
Originated loans past due 90 days or more accruing interest	$	8,538		$	11,176		$	6,253
Total nonperforming assets as a percentage of total originated loans and ORE	0.52		%	0.60		%	0.57		%

Total nonperforming assets as of September 30, 2014 were $63.1 million, an increase of $2.2 million, or 3.67%, from December 31, 2013 and an increase of $7.7 million, or 13.88%, from September 30, 2013. Total originated loans past due 30-89 days totaled $41.4 million at September 30, 2014, a decrease of $22.1 million, or 34.77%, from December 31, 2013, and a decrease of $4.3 million, or 9.30%, from September 30, 2013. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Commercial nonperforming originated loans decreased$3.3 million, or 12.96%, from December 31, 2013 and increased$3.2 million, or 16.76%, from September 30, 2013. Total OREO increased$5.1 million, or 27.40%, from December 31, 2013 and $4.0 million, or 19.96%, from September 30, 2013. As of September 30, 2014, other real estate included 17 former banking facilities that the Corporation no longer intends to use for banking purposes valued at approximately $4.1 million.

Net charge offs within the originated consumer portfolio were $3.1 million for the three months ended September 30, 2014 compared to $3.4 million for the three months ended September 30, 2013. Average FICO scores on the originated consumer portfolio subcomponents are excellent with average scores on installment loans at 756, home equity lines at 775, residential mortgages at 738, and credit cards at 769.

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 September 30, 2014, accruing originated loans 90 days or more past due totaled $8.5 million compared to $11.2 million and $12.5 million at December 31, 2013 and September 30,

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

Figure 14. Nonaccrual Originated Commercial Loan Flow Analysis

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

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan's effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as TDRs. In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near term. 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 $79.0 million, $79.5 million, and $81.7 million as of September 30, 2014, December 31, 2013, and September 30, 2013, 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 73.71%, 73.22%, and 73.18%, respectively, of the total originated TDR portfolio as of September 30, 2014, December 31, 2013, and September 30, 2013, respectively. We restructure residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate the potential for additional losses. The primary restructuring methods

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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 FNMA and FHLMC.

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 and covered 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 their respective acquisition dates and are accounted for in pools.

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

Average quarter to date deposits totaled $19.5 billion as of September 30, 2014, December 31, 2013, and September 30, 2013. The Corporation has successfully executed a strategy to increase the concentration of lower cost deposits within the overall deposit mix by focusing on growth in checking, money market and savings account products with less emphasis on renewing maturing certificate of deposit accounts. In addition to efficiently funding balance sheet growth, the increased concentration in core deposit accounts generally deepens and extends the length of customer relationships. The following table in Figure 15 presents the deposit products and their respective rates for the three months ended September 30, 2014, December 31, 2013, and September 30, 2013.

Figure 15. Respective Rates of Deposit Products and Funding

	Three Months Ended
	September 30, 2014				December 31, 2013				September 30, 2013
(Dollars in thousands)	Average Balance		Average Rate		Average Balance		Average Rate		Average Balance		Average Rate
Noninterest-bearing	$	5,603,104	—	%	$	5,546,316	—	%	$	5,443,800	—	%
Interest-bearing	3,100,904		0.10	%	2,875,375		0.10	%	2,720,592		0.12	%
Savings and money market accounts	8,492,172		0.26	%	8,544,097		0.28	%	8,570,910		0.30	%
Certificates and other time deposits	2,335,620		0.48	%	2,551,688		0.39	%	2,720,929		0.25	%
Total customer deposits	19,531,800		0.19	%	19,517,476		0.19	%	19,456,231		0.18	%
Federal funds purchased and securities sold under agreements to repurchase	1,182,507		0.09	%	948,959		0.12	%	1,011,991		0.12	%
Wholesale borrowings	438,941		1.26	%	200,622		1.85	%	201,012		1.85	%
Long-term debt	320,387		4.68	%	324,426		4.77	%	324,424		4.77	%
Total funds	$	21,473,635	0.27	%	$	20,991,483	0.27	%	$	20,993,658	0.27	%

Average quarter to date demand deposits comprised 44.56% of average deposits during the three months ended September 30, 2014 compared to 43.15% during the three months ended December 31, 2013, and 41.96% during the three months ended September 30, 2013. Savings accounts, including money market products, made up 43.48% of average deposits during the three months ended September 30, 2014 compared to 43.78% during the three months ended December 31, 2013, and 44.05% during the three months ended September 30, 2013. Certificates and other time deposits made up 11.96% of average deposits during the three

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months ended September 30, 2014, 13.07% during the three months ended December 31, 2013, and 13.98% during the three months ended September 30, 2013.

The average cost of deposits, federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt was up1 basis point compared to the same period one year ago, or 2.78% for the three months ended September 30, 2014 due to an increase in interest rates.

The following table in Figure 16 summarizes certificates and other time deposits in amounts of $100 thousand or more for the three months ended September 30, 2014 by time remaining until maturity.

Figure 16. Certificates and Other Time Deposits in increments of $100 Thousand or More

	Amount
Time until maturity:	(In thousands)
Under 3 months	$	254,965
3 to 6 months	143,134
6 to 12 months	217,811
Over 12 months	162,605
Total	$	778,515

Capital Resources

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

Shareholders' Equity

Shareholders' equity was $2.8 billion as of September 30, 2014, compared with $2.7 billion as of December 31, 2013 and $2.7 billion as of September 30, 2013. The Corporation's Common Stock is traded on the NASDAQ under the symbol FMER with 12,331 holders of record at September 30, 2014.

•At September 30, 2014, the Corporation's common equity value per common share was $16.45 based on approximately 165.4 million shares outstanding at September 30, 2014, compared to $15.77 based on approximately 165.1 million shares outstanding at December 31, 2013, and $15.48 based on approximately 165.0 million shares outstanding at September 30, 2013.

•At September 30, 2014, the Corporation's tangible book value per common share was $11.52 compared to $10.77 at December 31, 2013, and $10.47 at September 30, 2013.

•At September 30, 2014, the Corporation's book value per common share was $17.05 compared to $16.38 at December 31, 2013, and $16.08 at September 30, 2013.

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

During the third quarter of 2014, the Corporation made a dividend payment of $0.16 per share, or $26.3 million, on its Common Stock. As of September 30, 2014, the dividend of $0.16 per common share has an

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indicated annual rate of $0.64 per common share. Also in the third quarter of 2014, the Corporation made a quarterly dividend payment of $1.5 million, or $14.69 per share, or $0.36725 per depositary share, on the Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series A.

The following table in Figure 17 shows activities that caused the change in outstanding Common Stock over the past five quarters.

Figure 17. Changes in Common Stock Outstanding

	2014		2014		2014		2013		2013
(Shares in thousands)	3rd qtr		2nd qtr		1st qtr		4th qtr		3rd qtr
Beginning of period	165,393		165,087		165,056		165,045		165,045
Issued (repurchased)	(10	)	(186	)	(51	)	(13	)	7
Reissued (returned) under employee benefit plans	1		492		82		24		(7	)
End of period	165,384		165,393		165,087		165,056		165,045

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 8.01% at September 30, 2014, compared with 7.70% at December 31, 2013, and 7.41% at September 30, 2013.

Financial institutions are subject to a strict uniform system of capital-based regulations. Under this system, there are five different categories of capitalization, with "prompt corrective actions" and significant operational restrictions imposed on institutions that are capital deficient under the categories. The five categories are: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

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

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As of September 30, 2014, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well-capitalized category.

Figure 18. Capitalization Tables

(Dollars in thousands)	September 30, 2014				December 31, 2013				September 30, 2013
Consolidated
Total equity	$	2,820,431	11.46	%	$	2,702,894	11.30	%	$	2,654,645	11.00	%
Common equity (a)	2,720,431		11.05	%	2,602,894		10.89	%	2,554,645		10.58	%
Tangible common equity (a) (b)	1,904,738		8.01	%	1,778,399		7.70	%	1,727,458		7.41	%
Tier 1 capital (a) (b)	1,947,161		11.17	%	1,880,804		11.52	%	1,841,949		11.23	%
Total risk-based capital (a) (b)	2,344,137		13.45	%	2,279,891		13.97	%	2,244,202		13.68	%
Leverage (b)	1,947,161		8.22	%	1,880,804		8.14	%	1,841,949		7.98	%
	September 30, 2014				December 31, 2013				September 30, 2013
Bank Only
Total equity	$	2,898,040	11.79	%	$	2,859,515	11.98	%	$	2,810,097	11.67	%
Common equity (a)	2,898,040		11.79	%	2,859,515		11.98	%	2,810,097		11.67	%
Tangible common equity (a) (b)	2,082,347		8.76	%	2,036,941		8.84	%	1,989,767		8.55	%
Tier 1 capital (a) (b)	2,040,230		11.70	%	1,978,140		12.14	%	1,960,901		11.97	%
Total risk-based capital (a) (b)	2,182,108		12.51	%	2,122,124		13.02	%	2,108,032		12.86	%
Leverage (b)	2,040,230		8.64	%	1,978,140		8.58	%	1,960,901		8.50	%

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

^(b) December 31, 2013 and September 30, 2013 data reflects purchase accounting adjustments which resulted in an increase to goodwill of approximately $1.9 million and $6.9 million, respectively, from that previously reported.

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.

Interest rate risk management

Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The Corporation seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The ALCO oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to these policies, responsibility for measuring and the management of interest rate risk resides in the Corporate Treasury 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.

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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.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and EVE sensitivity analysis, which capture both near term and long-term interest rate risk exposures. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of short-term and long-term interest rate risk in the Corporation.

Net interest income simulation analysis. Earnings simulation involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Presented below is the Corporation’s interest rate risk profile as of September 30, 2014and2013:

Figure 19. Net Interest Income Simulation Results

	Immediate Change in Rates and Resulting  Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
September 30, 2014	(4.16	)%	1.70	%	3.40	%	4.78	%
September 30, 2013	(3.61	)%	1.05	%	1.95	%	2.64	%

Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. The assumptions used in the models are Management’s best estimate based on studies conducted by the ALCO department. The ALCO department uses a data-warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to refine assumptions continuously. Assumptions and methodologies regarding administered rate liabilities (e.g., savings, money market and interest-bearing checking accounts), balance trends, and repricing relationships reflect Management’s best estimate of expected behavior and these assumptions are reviewed regularly.

Economic value of equity modeling. The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses EVE sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of all cash flows of on balance sheet and off balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s EVE. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow Management to measure longer-term repricing and option risk in the balance sheet.

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Presented below is the Corporation’s EVE profile as of September 30, 2014 and 2013:

Figure 20. EVE Simulation Results

	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points		+ 100 basis points		+ 200 basis points		+ 300 basis points
September 30, 2014	(3.25	)%	1.34	%	1.75	%	1.64	%
September 30, 2013	4.63	%	0.67	%	(1.42	)%	(3.91	)%

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 analyses 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 8 (Derivatives and Hedging Activities) in the notes to the consolidated financial statements in this Form 10-Q.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The Corporation considers core earnings, strong capital ratios and credit quality essential for maintaining high credit ratings, which allow the Corporation cost-effective access to market-based liquidity. The Corporation relies on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk.

The treasury group is responsible for identifying, measuring and monitoring the Corporation’s liquidity profile. The position is evaluated daily, weekly and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future month and identifying sources and uses of funds. The overall management of the Corporation’s liquidity position is also integrated into retail deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base. Core deposits comprised approximately 87.65% of total deposits at September 30, 2014. 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 provided by unencumbered, or unpledged, investment securities that totaled $2.7 billion as of September 30, 2014.

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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 September 30, 2014, lower cost core deposits decreased by $54.2 million from the second quarter 2014. In the aggregate, there was an increase in deposits of $68.5 million from June 30, 2014. The Corporation’s loan to deposit ratio increased to 78.70% as of September 30, 2014 from 77.57% as of June 30, 2014. Securities sold under agreements to repurchase increased$54.4 million from June 30, 2014. Wholesale borrowings and long-term debt had a net decrease of $115.1 million from June 30, 2014. This decrease was in part attributable to the redemption of certain trust preferred securities in the quarter.

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 September 30, 2014, the Bank paid $69.3 million in dividends to the Corporation. As of September 30, 2014, the Bank had an additional $241.4 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, 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 management of risk, alignment of business strategies within risk guidelines and the Corporation's tolerance for risk as well as 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

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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 2013 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 ALL, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas appears within Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2013 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 8 (Derivatives and Hedging Activities) to the Corporation’s unaudited consolidated financial statements included in this Form 10-Q and in Note 18 to the consolidated financial statements in the 2013 Form 10-K. There have been no significant changes since December 31, 2013.

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 2013 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 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;

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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 SEC. 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, FINRA, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies, including efforts to reduce operating expenses, and managing the risks involved in the foregoing, could cause actual results to differ.

Other factors not currently anticipated may also materially and adversely affect the Corporation’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Corporation believes that the forward-looking statements in this report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Corporation does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See Market 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 ended September 30, 2014, there was no change in internal control over financial reporting, under the updated Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, 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 12 (Contingencies and Guarantees) in the notes to the consolidated financial statements in this form 10-Q.

ITEM 1A. RISK FACTORS.

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

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

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

Calendar Month	Total Number of Shares  Purchased (1)	Average Price Paid per  Share		Total Number of Shares  Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of  Shares that May Yet Be Purchased Under Plans or Programs (2)
July 1- July 31, 2014	2,880	$	24.08	—	396,272
August 1- August 31, 2014	5,738	19.64		—	396,272
September 1- September 30, 2014	1,604	22.59		—	396,272
Total	10,222	$	21.35	—	396,272

(1) Reflects 10,222 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 third quarter of 2014.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

    None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5.     OTHER INFORMATION.

Not Applicable.

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ITEM 6. EXHIBITS

Exhibit
Number	Description
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 September 30, 2014 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)

November 4, 2014

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FirstMerit Corporation

Form 10-Q

Index to Exhibits

Exhibit	Description
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 September 30, 2014 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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