FirstMerit 10Q 2009 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2009


o		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 0-10161

FIRSTMERIT CORPORATION

(Exact name of registrant as specified in its charter)


OHIO		34-1339938
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO 44308-1103
(Address of principal executive offices)
(330) 996-6300
(Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 o

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 the definitions 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 o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

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 o No o

As of July 29, 2009, 85,272,799 shares, without par value, were outstanding.

TABLE OF CONTENTS


	PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
	PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


(In thousands)
(Unaudited, except December 31, 2008, which is derived from the	June 30,			December 31,			June 30,
audited financial statements)	2009			2008			2008

ASSETS
Cash and due from banks	$	156,590		$	178,406		$	195,930
Investment securities (at fair value)		2,703,257			2,772,848			2,469,692
Loans held for sale		20,780			11,141			14,285
Loans:
Commercial loans		4,181,857			4,352,730			4,136,273
Mortgage loans		503,890			547,125			569,516
Installment loans		1,497,211			1,574,587			1,619,383
Home equity loans		754,110			733,832			697,729
Credit card loans		148,104			149,745			146,727
Leases		59,974			67,594			71,254

Total loans		7,145,146			7,425,613			7,240,882
Less allowance for loan losses		(111,222	)		(103,757	)		(98,239	)

Net loans		7,033,924			7,321,856			7,142,643
Premises and equipment, net		127,284			133,184			126,021
Goodwill		139,245			139,245			139,245
Intangible assets		1,229			1,403			1,577
Accrued interest receivable and other assets		514,653			541,943			475,359

Total assets	$	10,696,962		$	11,100,026		$	10,564,752


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	1,885,087		$	1,637,534			1,576,584
Demand-interest bearing		648,132			666,615			698,829
Savings and money market accounts		2,851,236			2,512,331			2,367,825
Certificates and other time deposits		2,066,765			2,781,199			2,633,946

Total deposits		7,451,220			7,597,679			7,277,184

Securities sold under agreements to repurchase		1,069,945			921,390			1,239,925
Wholesale borrowings		924,438			1,344,195			953,759
Accrued taxes, expenses, and other liabilities		228,712			298,919			169,455

Total liabilities		9,674,315			10,162,183			9,640,323

Commitments and contingencies
Shareholders’ equity:
Preferred stock, without par value:
authorized and unissued 7,000,000 shares		—			—			—
Preferred stock, Series A, without par value:
designated 800,000 shares; none outstanding		—			—			—
Convertible preferred stock, Series B, without par value:
designated 220,000 shares; none outstanding		—			—			—
Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 liquidation preference; authorized and issued 125,000 shares		—			—			—
Common stock, without par value:
authorized 300,000,000 shares; issued 92,026,350 at June 30, 2009, December 31, 2008 and June 30, 2008		127,937			127,937			127,937
Capital surplus		45,674			94,802			93,267
Accumulated other comprehensive loss		(33,431	)		(54,080	)		(51,434	)
Retained earnings		1,055,283			1,053,435			1,041,473
Treasury stock, at cost, 6,760,676, 11,066,108 and 11,180,046 shares at June 30, 2009, December 31, 2008 and June 30, 2008, respectively		(172,816	)		(284,251	)		(286,814	)

Total shareholders’ equity		1,022,647			937,843			924,429

Total liabilities and shareholders’ equity	$	10,696,962		$	11,100,026		$	10,564,752

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

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)	Quarters ended						Six months ended
(In thousands except per share data)	June 30,						June 30,
	2009			2008			2009			2008
Interest income:
Interest and fees on loans, including held for sale	$	86,247		$	106,516			174,046		$	222,804
Interest and dividends on investment securities and federal funds sold		29,912			29,255			61,469			58,491

Total interest income		116,159			135,771			235,515			281,295

Interest expense:
Interest on deposits:
Demand-interest bearing		159			591			314			1,555
Savings and money market accounts		5,452			6,500			10,829			16,143
Certificates and other time deposits		15,325			26,587			33,913			58,574
Interest on securities sold under agreements to repurchase		1,211			8,319			2,210			19,861
Interest on wholesale borrowings		6,897			6,243			14,240			13,332

Total interest expense		29,044			48,240			61,506			109,465

Net interest income		87,115			87,531			174,009			171,830
Provision for loan losses		26,521			14,565			44,586			26,086

Net interest income after provision for loan losses		60,594			72,966			129,423			145,744

Other income:
Trust department income		5,438			5,824			10,228			11,274
Service charges on deposits		15,853			16,028			30,016			30,764
Credit card fees		11,668			12,146			22,752			23,303
ATM and other service fees		2,839			2,770			5,445			5,564
Bank owned life insurance income		2,985			3,217			6,000			6,418
Investment services and insurance		2,270			2,790			5,188			5,655
Investment securities gains, net		1,178			47			1,178			571
Loan sales and servicing income		3,791			1,885			6,126			3,276
Gain on Visa Inc. redemption		—			—			—			7,898
Gain on post medical retirement curtailment		—			—			9,543			—
Other operating income		4,823			4,051			9,557			6,889

Total other income		50,845			48,758			106,033			101,612

Other expenses:
Salaries, wages, pension and employee benefits		44,125			44,364			86,807			87,429
Net occupancy expense		5,858			6,204			12,729			12,958
Equipment expense		6,212			5,842			12,009			12,036
Stationery, supplies and postage		2,051			2,242			4,326			4,567
Bankcard, loan processing and other costs		7,862			7,356			15,704			14,600
Professional services		2,856			2,581			6,336			4,468
Amortization of intangibles		87			177			174			400
Other operating expense		21,513			11,784			35,682			25,326

Total other expenses		90,564			80,550			173,767			161,784

Income before federal income tax expense		20,875			41,174			61,689			85,572
Federal income tax expense		5,380			12,021			16,760			24,976

Net income	$	15,495		$	29,153			44,929		$	60,596


Other comprehensive income, net of taxes Unrealized securities’ holding gain (loss), net of taxes	$	6,246		$	(22,119	)		22,063		$	(10,510	)
Unrealized hedging gain (loss), net of taxes		—			1,419			(94	)		786
Minimum pension liability adjustment, net of taxes		(277	)		873			(554	)		1,746
Less: reclassification adjustment for securities’ gain realized in net income, net of taxes		766			31			766			371

Total other comprehensive gain (loss), net of taxes		5,203			(19,858	)		20,649			(8,349	)

Comprehensive income	$	20,698		$	9,295			65,578		$	52,247

Net income applicable to common shares	$	10,995		$	29,153			38,558		$	60,596

Net income used in diluted EPS calculation	$	10,995		$	29,154			38,558		$	60,601

Weighted average number of common shares outstanding — basic *		83,317			81,287			82,310			80,972

Weighted average number of common shares outstanding — diluted *		83,325			81,330			82,318			81,030

Basic earnings per share *	$	0.13		$	0.36			0.47		$	0.75

Diluted earnings per share *	$	0.13		$	0.36			0.47		$	0.75

Stock dividend per share		0.74	%		—			0.74	%		—

Dividend per share	$	0.16		$	0.29			0.45		$	0.58


*		Average outstanding shares and per share data restated to reflect the effect of a stock dividend declared April 28, 2009.
The accompanying notes are an integral part of the consolidated financial statements.

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
	June 30,
(Unaudited)
(In thousands)	2009			2008
Operating Activities
Net income	$	44,929		$	60,596
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		44,586			26,086
Provision for depreciation and amortization		9,711			9,215
Amortization of investment securities premiums, net		2,066			543
Accretion of income for lease financing		(1,753	)		(2,044	)
Gains on sales and calls of investment securities, net		(1,178	)		(571	)
Decrease in interest receivable		2,348			5,993
Decrease in interest payable		(3,763	)		(7,251	)
Increase in prepaid assets		(8,715	)		(2,534	)
Post medical retirement curtailment gain		(9,543	)		—
Increase in bank owned life insurance		(6,001	)		(6,418	)
(Decrease) increase in taxes payable		(15,239	)		3,405
Originations of loans held for sale		(295,359	)		(172,373	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets		288,333			173,207
(Gains) losses on sales of loans, net		(2,613	)		543
Amortization of intangible assets		174			400
Other decreases		(5,992	)		(8,897	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		41,991			79,900
Investing Activities
Dispositions of investment securities:
Available-for-sale — sales		85,237			77,985
Available-for-sale — maturities		339,390			354,896
Purchases of available-for-sale investment securities		(306,455	)		(422,410	)
Net increase in federal funds sold		—			500
Net decrease (increase) in loans and leases, excluding sales		224,846			(227,953	)
Purchases of premises and equipment		(3,894	)		(4,830	)
Sales of premises and equipment		83			63

NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES		339,207			(221,749	)
Financing Activities
Net increase in demand accounts		229,070			64,967
Net increase in savings and money market accounts		338,905			72,678
Net decrease in certificates and other time deposits		(714,434	)		(192,200	)
Net increase (decrease) in securities sold under agreements to repurchase		148,555			(16,155	)
Net (decrease) increase in wholesale borrowings		(419,757	)		248,638
Proceeds from issuance of preferred stock		125,000			—
Repurchase of preferred stock		(125,000	)		—
Repurchase of common stock warrant		(5,025	)		—
Proceeds from issuance of common stock		59,782			—
Cash dividends — preferred		(1,789	)		—
Cash dividends — common		(36,710	)		(46,898	)
Purchase of treasury shares		(1,649	)		(672	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		38			86

NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES		(403,014	)		130,444

Decrease in cash and cash equivalents		(21,816	)		(11,405	)
Cash and cash equivalents at beginning of period		178,406			207,335

Cash and cash equivalents at end of period	$	156,590		$	195,930


SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized	$	31,453		$	57,424

Federal income taxes	$	22,016		$	28,408

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

FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements
June 30, 2009(Unaudited)(Dollars in thousands except per share data)

1.Basis of Presentation— FirstMerit Corporation (“Corporation”) is a bank holding company whose principal asset is the common stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. The Corporation’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FMT, Inc., Realty Facility Holdings XV, L.L.C, and FirstMerit Risk Management, Inc.

The consolidated balance sheet at December 31, 2008 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 accruals) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. In preparing these financial statements, subsequent events were evaluated through July 30, 2009, the date the financial statements were issued. Financial statements are considered issued when they are filed with the Securities and Exchange Commission (“SEC”). In conjunction 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. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules of the SEC. The consolidated financial statements of the Corporation as of June 30, 2009 and 2008 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 for the fiscal year ended December 31, 2008.

2.Accounting Policies Recently Adopted and Pending Accounting Pronouncements —Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations (“SFAS 141 (R)”). SFAS 141 (R) requires an acquirer in a business combination to recognize the assets acquired (including loan receivables), the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, at their fair values as of that date, with limited exceptions. The acquirer is not permitted to recognize a separate valuation allowance as of the acquisition date for loans and other assets acquired in a business combination. The revised statement requires acquisition-related costs to be expensed separately from the acquisition. It also requires restructuring costs that the acquirer expected but was not obligated to incur, to be expensed separately from the business combination. FAS 141R is applicable prospectively to business combinations completed on or after January 1, 2009. The Corporation will account for business combinations with acquisition dates on or after January 1, 2009, under SFAS 141 (R).

Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”).During December 2007, the FASB issued SFAS 160 to establish accounting and reporting standards for

the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statement, but separate from the parent’s equity. Before the statement was issued these so-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. The amount of consolidated net income attributable to the parent and to the noncontrolling interest must be clearly identified and presented in the consolidated statement of income. This statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of this statement did not have an impact on the Corporation’s consolidated financial condition or results of operations.

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”).During March 2008, the FASB issued SFAS 161. SFAS 161 amends and expands the disclosure requirement of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivative, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. For more information on the Corporation’s derivative instruments and hedging activities, see Note 8 (Accounting for Derivatives and Hedging Activities).

FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“FSP EITF 03-6-1”).During June 2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1. FSP EITF 03-6-1 clarifies whether instruments, such as restricted stock, granted in share-based payments are participating securities prior to vesting. Such participating securities must be included in the computation of earnings per share under the two-class method as described in SFAS No. 128, “Earnings per Share.” FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and requires a company to retrospectively adjust its earning per share data. The adoption of FSP EITF 03-6-1 did not have a material effect on the Corporation’s consolidated results of operations or earnings per share.

Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”).On May 29, 2009, the FASB issued SFAS 165 which provides authoritative accounting literature for a topic that was previously addressed only in the auditing literature. The guidance in SFAS 165 largely is similar to the current guidance in the auditing literature with some expectations that are not intended to result in significant changes in practice. SFAS 165 requires the disclosure of the date through which the Corporation has evaluated subsequent events and the

basis for that date, that is, whether that date represents the date the financial statements were issued. SFAS 165 is effective on a prospective basis for interim or annual reporting periods ending after June 15, 2009.

FSP FAS 107-1, Interim Disclosures About Fair Value of Financial Instruments (“FSP FAS 107-1”).On April 9, 2009, the FASB issued FSP FAS 107-1 which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”) to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 is effective for interim reporting periods ending after June 15, 2009. See Note 10 (Fair Value Measurements) for disclosures about fair value of the Corporation’s financial instruments.

FSP FAS 115-2, Recognition and Presentation of Other-Than-Temporary-Impairment (“FSP FAS 115-2”).On April 9, 2009, the FASB issued FSP FAS 115-2 which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 115-2 did not have a material impact on the Corporation’s consolidated financial condition or results of operations. See Note 3 (Investment Securities) for additional information regarding the application of this guidance to the Corporation’s investment securities.

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly (“FSP FAS 157-4”).On April 9, 2009, the FASB issued FSP FAS 157-4, which provides additional guidance for estimating fair value in accordance with SFAS No. 157 “Fair Value Measurement” (“SFAS 157”) when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have a material impact on the Corporation’s consolidated financial condition or results of operations. See Note 10 (Fair Value Measurements) for additional information on how the Corporation determines fair value.

Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”).During May 2008, the FASB issued SFAS 162. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States. This statement will be effective for financial statements for interim or annual periods ending on or after September 15, 2009. Adoption of SFAS 162 will not be a change in the Corporation’s current accounting practices; therefore, it will not have a material impact on the Corporation’s consolidated financial condition or results of operations.

Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”).On June 12, 2009, the FASB issued SFAS 166 which removes the concept of a qualifying special-purpose entity (“QSPE”) from Statement 140, and eliminates the exception for QSPEs from the consolidation guidance of FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities (“FIN 46 (R)”). Concurrent with the issuance of SFAS 166, the FASB issued SFAS 167, Amendment to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 addresses the effect of eliminating the QSPE concept from Statement 140 and enhances the transparency of an entity’s involvement in a variable interest entity (“VIE”). SFAS 166 is effective as of the beginning of the Corporation’s first annual reporting period beginning after November 15, 2009. Earlier adoption is prohibited. The Corporation does not expect the adoption of the provisions of SFAS 166 to have a material effect on the Corporation’s financial condition and results of operations.

Statement of Financial Accounting Standards No. 167, Amendment to FASB Interpretation No. 46 (R) (“SFAS 167”).On June 12, 2009, the FASB issued SFAS 167 to address the effects of eliminating the QSPE concept from FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Liabilities and enhance the transparency of an entity’s involvement in a variable interest entity (“VIE”). SFAS 167 is effective as of the beginning of the Corporation’s first annual reporting period beginning after November 15, 2009. Earlier adoption is prohibited. The Corporation does not expect the adoption of the provisions of SFAS 167 to have a material effect on the Corporation’s financial condition and results of operations.

FSP FAS 132(R)-1, Employer’s Disclosures about Postretirement Benefit Plan Assets (“FSP FAS 132(R)-1”).In December 2008, the FASB issued FSP FAS 132(R)-1, which amends and expands the disclosure requirements on the plan assets of defined benefit pension and other postretirement plans to provide users of financial statements with an understanding of: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair-value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. FSP FAS 132(R)-1 is effective for financial statements issued for fiscal years after December 15, 2009. The Corporation does not expect the adoption of the provisions of FSP FAS 132(R)-1 to have a material effect on the Corporation’s financial condition and results of operations.

3.Investment Securities — The following table provides the cost and fair value for the major categories of securities available for sale. Net unrealized gains and losses are reported on an after-tax basis as a component of cumulative other comprehensive income.


	June 30, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S States and political subdivisions	$	312,669	$	2,523	$	(2,334	)	$	312,858
Residential mortgage-backed securities:
U.S. government agencies		1,610,128		46,706		(97	)		1,656,737
Residential collateralized mortgage securities:
U.S. government agencies		534,613		16,428		(230	)		550,811
Non-agency		18,155		—		(951	)		17,204
Corporate debt securities		61,359		—		(28,103	)		33,256
Other debt securities		705		—		—			705

Total debt securities	$	2,537,629	$	65,657	$	(31,715	)	$	2,571,571
Equity securities
Marketable equity securities		3,622		—		—			3,622
Non-marketable equity securities		128,064		—		—			128,064

Total equity securities	$	131,686	$	—	$	—		$	131,686

Total securities available for sale	$	2,669,315	$	65,657	$	(31,715	)	$	2,703,257


	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. Treasury and government agency	$	20,000	$	38	$	—		$	20,038
U.S States and political subdivisions		317,024		2,726		(3,580	)		316,170
Residential mortgage-backed securities:
U.S. government agencies		1,681,378		29,643		(2,795	)		1,708,226
Residential collateralized mortgage securities:
U.S. government agencies		539,382		7,071		(1,159	)		545,294
Non-agency		20,450		—		(787	)		19,663
Corporate debt securities		61,335		—		(29,979	)		31,356
Other debt securities		730		—		—			730

Total debt securities	$	2,640,299	$	39,478	$	(38,300	)	$	2,641,477
Equity securities
Marketable equity securities		3,364		—		—			3,364
Non-marketable equity securities		128,007		—		—			128,007

Total equity securities	$	131,371	$	—	$	—		$	131,371

Total securities available for sale	$	2,771,670	$	39,478	$	(38,300	)	$	2,772,848


	June 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt securities
U.S. Treasury and government agency	$	1,000	$	3	$	—		$	1,003
U.S States and political subdivisions		289,702		739		(4,619	)		285,822
Residential mortgage-backed securities:
U.S. government agencies		1,605,361		6,095		(16,424	)		1,595,032
Residential collateralized mortgage securities:
U.S. government agencies		390,268		1,674		(3,451	)		388,491
Non-agency		21,886		—		(189	)		21,697
Corporate debt securities		61,309		—		(13,894	)		47,415
Other debt securities		755		—		—			755

Total debt securities	$	2,370,281	$	8,511	$	(38,577	)	$	2,340,215
Equity securities
Marketable equity securities		3,132		—		—			3,132
Non-marketable equity securities		126,345		—		—			126,345

Total equity securities	$	129,477	$	—	$	—		$	129,477

Total securities available for sale	$	2,499,758	$	8,511	$	(38,577	)	$	2,469,692

The Corporation is a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati. Members are required to own a certain amount of stock based on the level of borrowings and other factors. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. The Corporation is also member of the Federal Reserve Bank (“FRB”) and owns FRB stock. FHLB and FRB stock are carried at cost, classified as non-marketable equity securities, and periodically evaluated for impairment. Because this stock is viewed as long term investments, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Gross Unrealized Losses and Fair Value

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


	At June 30, 2009
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			impaired		Fair		Unrealized			impaired		Fair		Unrealized
	Fair Value		Losses			securities		Value		Losses			securities		Value		Losses
Securities available for sale
Debt securities
U.S. States and political subdivisions	$	76,239	$	(925	)		117	$	38,794	$	(1,409	)		66	$	115,033	$	(2,334	)
Residential mortgage-backed securities:														—		—		—
U.S. Government agencies securities:		30,291		(93	)		4		335		(4	)		3		30,626		(97	)
U.S. Government agencies		20,237		(230	)		2		—		—			—		20,237		(230	)
Non-agency		17,180		(951	)		1		—		—			—		17,180		(951	)
Corporate debt securities		—		—			—		33,256		(28,103	)		8		33,256		(28,103	)

Total temporarily impaired securities	$	143,947	$	(2,199	)		124	$	72,385	$	(29,516	)		77	$	216,332	$	(31,715	)


	At December 31, 2008
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			impaired		Fair		Unrealized			impaired		Fair		Unrealized
	Fair Value		Losses			securities		Value		Losses			securities		Value		Losses
Securities available for sale
Debt securities
U.S. States and political subdivisions	$	121,040	$	(3,333	)		197	$	6,188	$	(247	)		8	$	127,228	$	(3,580	)
Residential mortgage-backed securities:
U.S. Government agencies securities:		246,741		(2,668	)		29		15,942		(127	)		4		262,683		(2,795	)
U.S. Government agencies		68,630		(483	)		7		28,221		(676	)		3		96,851		(1,159	)
Non-agency		19,638		(787	)		1		—		—			—		19,638		(787	)
Corporate debt securities		—		—			—		31,356		(29,979	)		8		31,356		(29,979	)

Total temporarily impaired securities	$	456,049	$	(7,271	)		234	$	81,707	$	(31,029	)		23	$	537,756	$	(38,300	)


	At June 30, 2008
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			impaired		Fair		Unrealized			impaired		Fair		Unrealized
	Fair Value		Losses			securities		Value		Losses			securities		Value		Losses
Securities available for sale
Debt securities
U.S. States and political subdivisions	$	196,268	$	(4,375	)		316	$	5,172	$	(244	)		6	$	201,440	$	(4,619	)
Residential mortgage-backed securities:
U.S. Government agencies securities:		606,215		(7,979	)		50		186,785		(8,445	)		11		793,000		(16,424	)
U.S. Government agencies		194,641		(2,062	)		17		31,750		(1,389	)		3		226,391		(3,451	)
Non-agency		7		(1	)		1		21,666		(188	)		1		21,673		(189	)
Corporate debt securities		21,510		(5,205	)		4		25,906		(8,689	)		4		47,416		(13,894	)

Total temporarily impaired securities	$	1,018,641	$	(19,623	)		388	$	271,279	$	(18,955	)		25	$	1,289,920	$	(38,577	)

At least quarterly the Corporation conducts a comprehensive security-level impairment assessment in accordance with FSP 115-2. As required by this FSP, the assessments are based on

the nature of the securities, the financial condition of the issuer, the extent and duration of the securities, the extent and duration of the loss and the intent and whether management intends to sell or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis, which may be maturity. For those securities for which the assessment shows the Corporation will recover the entire cost basis, management does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in other comprehensive income, net of tax.

As of June 30, 2009, gross unrealized losses are primarily concentrated within corporate debt securities which is composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 1% of the fair value of the entire investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the recent market conditions which have caused risk premiums to increase markedly resulting in the significant decline in the fair value of the trust preferred securities. Management believes the Corporation will fully recover the cost of these securities and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at June 30, 2009 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

Realized Gains and Losses

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


	Quarter ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Proceeds	$	68,685	$	9,047	$	85,237	$	77,985


Realized gains	$	1,178	$	47	$	1,178	$	571
Realized losses		—		—		—		—

Net securities gains	$	1,178	$	47	$	1,178	$	571

Contractual Maturity of Debt Securities

The following table shows the remaining contractual principal maturities and contractual yields of debt securities available-for-sale as of June 30, 2009.


										Residential
							Residential			collateralized
							collateralized			mortgage
				Residential			mortgage			obligations —
				mortgage backed			obligations — U.S.			non U.S.
	U.S. States			securities — U.S.			Government			Government			Corporate									Weighted
	and political			Government			agency			agency			debt			Other						Average
	subdivisions			agency obligations			obligations			obligations			securities			securities			Total			Yield

Remaining maturity:
One year or less	$	15,668		$	43,518		$	13,005		$	—		$	—		$	51		$	72,242			3.85	%
Over one year through five years		17,568			1,491,453			482,327			17,204			—			203			2,008,755			4.53	%
Over five years through ten years		47,292			121,766			55,479			—			—			253			224,790			5.49	%
Over ten years		232,330			—			—			—			33,256			198			265,784			5.17	%

Fair Value	$	312,858		$	1,656,737		$	550,811		$	17,204		$	33,256		$	705		$	2,571,571			4.66	%

Amoritized Cost	$	312,669		$	1,610,128		$	534,613		$	18,155		$	61,359		$	705		$	2,537,629

Weighted-Average Yield		6.13	%		4.56	%		4.44	%		4.85	%		1.70	%		0.00	%		4.70	%
Weighted-Average Maturity		11.3			3.6			3.0			2.8			18.3			13.9			4.7

4.Allowance for loan losses (“ALL”) — 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.

Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”) more fully describe the components of the allowance for loan loss model.

The activity within the ALL for the quarters and six months ended June 30, 2009 and 2008 and full year ended December 31, 2008, is shown in the following table:


	Quarter ended				Six months ended				Year ended
	June 30,				June 30,				December 31,
	2009		2008		2009		2008		2008
Allowance for loan losses-beginning of period	$	106,257	$	94,411	$	103,757	$	94,205	$	94,205
Loans charged off:
Commercial		10,130		3,718		14,684		7,171		16,318
Mortgage		1,315		1,229		2,238		2,509		4,696
Installment		7,487		5,620		15,925		11,624		24,740
Home equity		1,497		1,226		3,032		2,292		4,153
Credit cards		3,696		2,500		6,663		4,793		9,821
Leases		3		—		3		—		26
Overdrafts		598		537		1,117		1,110		2,634

Total charge-offs		24,726		14,830		43,662		29,499		62,388

Recoveries:
Commercial		207		1,032		431		1,754		2,388
Mortgage		193		7		219		39		76
Installment		2,022		2,099		4,423		3,841		7,071
Home equity		111		142		196		242		851
Credit cards		388		557		775		1,016		1,831
Manufactured housing		32		54		85		126		247
Leases		42		31		47		69		104
Overdrafts		175		171		365		360		769

Total recoveries		3,170		4,093		6,541		7,447		13,337


Net charge-offs		21,556		10,737		37,121		22,052		49,051
Provision for loan losses		26,521		14,565		44,586		26,086		58,603

Allowance for loan losses-end of period	$	111,222	$	98,239	$	111,222	$	98,239	$	103,757

5.Intangible Assets — At June 30, 2009, December 31, 2008 and June 30, 2008, the balance of the Corporation’s intangible assets, which consisted of deposit base intangibles, were as follows:


	Gross Carrying		Accumulated			Net Carrying
	Amount		Amorization			Amount
June 30, 2008	$	10,137	$	(8,560	)	$	1,577
December 31, 2008	$	10,137	$	(8,734	)	$	1,403
June 30, 2009	$	10,137	$	(8,908	)	$	1,229

Amortization expense for intangible assets was $0.09 million and $0.18 million for the three-months ended June 30, 2009 and 2008, respectively. The following table shows the estimated future amortization expense for deposit base intangible assets as of June 30, 2009.

For the years ended:


December 31, 2009	$	174
December 31, 2010		346
December 31, 2011 and beyond		709

	$	1,229

6.Earnings per share — The reconciliation between basic and diluted earnings per share (“EPS”) is calculated using the treasury stock method and presented as follows:


	Quarter ended			Quarter ended		Six months ended			Six months ended
	June 30,			June 30,		June 30,			June 30,
	2009			2008		2009			2008
BASIC EPS:

Net income	$	15,495		$	29,153	$	44,929		$	60,596
Less: preferred dividend		(4,500	)		—		(6,167	)		—
Less: accretion of preferred stock discount		—			—		(204	)		—


Net income available to common shareholders	$	10,995		$	29,153	$	38,558		$	60,596


Average common shares outstanding *		83,317			81,287		82,310			80,972


Net income per share — basic	$	0.13		$	0.36	$	0.47		$	0.75


DILUTED EPS:

Net income available to common shareholders	$	10,995		$	29,153	$	38,558		$	60,596
Add: interest expense on convertible bonds		—			1		—			5

	$	10,995		$	29,154	$	38,558		$	60,601

Avg common shares outstanding *		83,317			81,287		82,310			80,972
Add: Equivalents from stock options and restricted stock		8			29		8			30
Add: Equivalents-convertible bonds		—			14		—			28

Average common shares and equivalents outstanding *		83,325			81,330		82,318			81,030


Net income per common share — diluted	$	0.13		$	0.36	$	0.47		$	0.75


*		Average common shares outstanding have been restated to reflect a stock dividend of 614,094 shares declared April 28, 2009.

For the quarters ended June 30, 2009 and 2008 options to purchase 4.8 million and 6.4 million shares, respectively, were outstanding, but not included in the computation of diluted earnings per share because they were antidilutive.

On January 9, 2009, the Corporation completed the sale to the United States Department of the Treasury (the “Treasury”) of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the Treasury’s Troubled Assets Relief Program (“TARP”) Capital Purchase Program (“CPP”). FirstMerit issued and sold to the Treasury for an aggregate purchase price of $125.0 million in cash (1) 125,000 shares of FirstMerit’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference

of $1,000 per share, and (2) a warrant to purchase 952,260 FirstMerit common shares, each without par value, at an exercise price of $19.69 per share.

On April 22, 2009, the Corporation repurchased of all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock.

On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

On May 6, 2009, the Corporation entered into a Distribution Agency Agreement with Credit Suisse Securities (USA) LLC (“Credit Suisse”) pursuant to which the Corporation, from time to time, may offer and sell shares of the Corporation’s common stock. Sales of the common stock are made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, in block transactions, or as otherwise agreed with Credit Suisse. The Corporation has sold 3.3 million shares with an average value of $18.36 per share.

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 management methodologies designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.

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

•

Commercial —The commercial line of business provides a full range of lending, depository, and related financial services to middle-market corporate, industrial, financial, small business, government and leasing clients. Commercial also includes the personal business of commercial loan clients as well as the “micro business” lines. Products and services offered include commercial loans such as term loans, revolving credit arrangements, inventory and accounts receivable financing, commercial mortgages, real estate construction lending and letters of credit

•

Retail —The retail line of business includes consumer lending and deposit gathering and residential mortgage loan origination and servicing. Retail offers a variety of retail financial products and services including direct and indirect installment loans, debit and credit cards, home equity loans and lines of credit, residential mortgage loans, deposit products, fixed and variable annuities and ATM network services. Deposit products include checking, savings, money market accounts and certificates of deposit.

•

Wealth —The wealth line of business offers a broad array of asset management, private banking, financial planning, estate settlement and administration, credit and deposit products and services. Trust and investment services include personal trust and planning, investment management, estate settlement and administration services. Retirement plan services focus on investment management and fiduciary activities. Brokerage and insurance delivers retail mutual funds, other securities, variable and fixed annuities, personal disability and life insurance products and brokerage services. Private banking provides credit, deposit and asset management solutions for affluent clients.

•

Other —The other line of business includes activities that are not directly attributable to one of the three principal lines of business. Included in the other category are the parent company, eliminations companies, community development operations, the treasury group, which includes the securities portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support function not specifically identifiable with the three primary lines of business.

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the 2008 Form 10-K. Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. Assets and liabilities are match-funded based on their maturity, prepayment and/or repricing characteristics. As a result, the three primary lines of business are generally insulated from changes in interest rates. Changes in net interest income due to changes in rates are reported in the other category 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 (“MSRs”) and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan losses 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.

The Corporation’s business is conducted solely in the United States of America. The following tables present a summary of financial results for the quarters and six months ended June 30, 2009 and 2008:


	Commercial				Retail				Wealth				Other						Consolidated
June 30, 2009	2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr			YTD			2nd Qtr		YTD
OPERATIONS:
Net interest income	$	39,111	$	76,714	$	47,530	$	94,381	$	4,375	$	8,421	$	(3,901	)	$	(5,507	)	$	87,115	$	174,009
Provision for loan losses		10,393		14,893		12,704		22,465		2,002		4,615		1,422			2,613			26,521		44,586
Other income		10,240		20,640		26,789		50,766		8,153		16,216		5,663			18,411			50,845		106,033
Other expenses		23,179		46,761		48,933		99,595		9,269		18,604		9,183			8,807			90,564		173,767
Net income		10,257		23,205		8,244		15,006		816		922		(3,822	)		5,796			15,495		44,929


	Commercial				Retail				Wealth				Other						Consolidated
June 30, 2008	2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr		YTD		2nd Qtr			YTD			2nd Qtr		YTD
OPERATIONS:
Net interest income	$	36,844	$	75,403	$	48,628	$	97,227	$	4,113	$	8,352	$	(2,054	)	$	(9,152	)	$	87,531	$	171,830
Provision for loan losses		689		5,722		11,613		18,520		623		795		1,640			1,049			14,565		26,086
Other income		10,729		19,902		26,139		57,707		8,915		17,535		2,975			6,468			48,758		101,612
Other expenses		21,372		42,801		47,362		95,292		9,439		18,276		2,377			5,415			80,550		161,784
Net income		16,583		30,408		10,265		26,729		1,928		4,429		377			(970	)		29,153		60,596

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. 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. Master netting agreements allow the Corporation to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable.

The primary derivatives that the Corporation uses are interest rate swaps, interest rate lock commitments (“IRLCs”), forward sale contracts, and To Be Announced Mortgage Backed Securities (“TBA Securities”). 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.

Derivatives Designated in SFAS 133 Hedge Relationships

The Corporation uses interest rate swap contracts to modify its exposure to interest rate risk. For example, the Corporation employs fair value hedging strategies to convert specific fixed-rate loans into variable-rate instruments. Gains or losses on the derivative instrument as well as the offsetting gains or losses on the hedged item attributable to the hedged risk are

recognized in the same line item associated with the hedged item in current earnings. The Corporation also employs cash flow hedging strategies to effectively convert certain floating-rate liabilities into fixed-rate instruments. The effective portion of the gains or losses on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gains or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, are recognized in the current earnings.

At June 30, 2009, December 31, 2008 and June 30, 2008, the notional or contractual amounts and fair value of the Corporation’s derivatives designated in a SFAS 133 hedge relationship were as follows:


	Asset Derivatives												Liability Derivatives
	June 30, 2009				December 31, 2008				June 30, 2008				June 30, 2009				December 31, 2008				June 30, 2008
	Notional/				Notional/				Notional/				Notional/				Notional/				Notional/
	Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair
	Amount		Value (a)		Amount		Value (a)		Amount		Value (a)		Amount		Value (b)		Amount		Value (b)		Amount		Value (b)
Interest rate swaps:
Fair value hedges	$	901	$	—	$	—	$	—	$	53,231	$	799	$	490,650	$	36,382	$	530,482	$	56,635	$	551,509	$	15,278
Cash flow hedges		—		—		—		—		—		—		—		—		100,000		875		200,000		2,591

Total	$	901	$	—	$	—	$	—	$	53,231	$	799	$	490,650	$	36,382	$	630,482	$	57,510	$	751,509	$	17,869


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

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

Interest Rate Swaps designated as fair value hedges.Through the Corporation’s Fixed Rate Advantage Program (“FRAP Program”) a customer received a fixed interest rate commercial loan and the Corporation subsequently converted that fixed rate loan to a variable rate instrument over the term of the loan by entering into an interest rate swap with a dealer counterparty. The Corporation receives a fixed rate payment from the customer on the loan and pays the equivalent amount to the dealer counterparty on the swap in exchange for a variable rate payment based on the one month London Inter-Bank Offered Rate (“LIBOR”) index. These interest rate swaps are designated as fair value hedges under SFAS 133. Through application of the “short cut method of accounting”, there is an assumption that the hedges are effective. The Corporation discontinued originating interest rate swaps under the FRAP program in February 2008 and subsequently began a new interest rate swap program for commercial loan customers, termed the Back-to-Back Program.

The Corporation has other certain interest rate swaps associated with fixed rate commercial loans. These swaps are designated as fair value hedges under SFAS 133 and have a similar economic effect as the interest rate swaps originated under the FRAP Program. Regression analysis is utilized and it was determined there was no ineffectiveness of these fair value hedges for the quarters ended June 30, 2009 and 2008.

There was no ineffectiveness recorded on fair value hedges for the quarters ended June 30, 2009 and 2008.

Interest Rate Swaps designated as cash flow hedges.The Corporation enters into Federal Funds interest rate swaps to lock in a fixed rate to offset the risk of future fluctuations in the

variable interest rate on fed funds borrowings. The Corporation enters into a swap with the counterparty during which time the Corporation pays a fixed rate and receives a floating rate based on the current effective federal funds rate. The Corporation then borrows Federal Funds in an amount equal to at least the outstanding notional amount of the swap(s) which results in the Corporation being left with a fixed rate instrument. These instruments are designated as cash flow hedges under SFAS 133. Dollar offset analysis is used to assess the effectiveness of these hedges. There were no outstanding cash flows hedges as of June 30, 2009.

The amount of the hedge effectiveness on cash flow hedges recognized in other comprehensive income (“OCI”) and reclassified from OCI into income as well as the amount of hedge ineffectiveness recognized in income for the quarters ended June 30, 2009 and 2008 are as follows:

Location of Gain /

Amount of Gain / (Loss)

Location of Gain /

Amount of Gain / (Loss)

(Loss) Recognized

Amount of Gain / (Loss)

Recognized in OCI on

(Loss) Reclassified

Reclassified from

in Income on

Recognized in Income on

Derivative (Effective

from Accumulated

Accumulated OCI into

Derivative

Derivative (Ineffective

Quarter ended

OCI into Income

Quarter ended

(Ineffective

Quarter ended

June 30, 2009

June 30, 2008

(Effective Portion)

June 30, 2009

June 30, 2008

Portion)

June 30 , 2009

June 30, 2008

Interest rate swaps

—

(462

)

Other income

—

(268

)

Other income

—

The changes in accumulated other comprehensive income resulting from cash flow hedges are summarized as follows:

Six months ended June 30, 2009


					Reclassification
			2009		of Gain / (Loss)
	December 31, 2008		Hedging Activity		to Net Income			June 30, 2009
Accumulated other comprehensive income	$	94	$	—	$	(94	)	$	—

There was no activity associated with cash flow hedges for the quarter ended June 30, 2009.

Derivatives Not Designated in SFAS 133 Hedge Relationships

At June 30, 2009, December 31, 2008 and June 30, 2008, the notional or contractual amounts and fair value of the Corporation’s derivatives not designated in a SFAS 133 hedge relationship were as follows:


	Asset Derivatives													Liability Derivatives
	June 30, 2009				December 31, 2008					June 30, 2008				June 30, 2009				December 31, 2008				June 30, 2008
	Notional/				Notional/					Notional/				Notional/				Notional/				Notional/
	Contract		Fair		Contract		Fair			Contract		Fair		Contract		Fair		Contract		Fair		Contract		Fair
	Amount		Value (a)		Amount		Value (a)			Amount		Value (a)		Amount		Value (b)		Amount		Value (b)		Amount		Value (b)

Interest rate swaps	$	595,806	$	26,123	$	469,133	$	42,371		$	207,332	$	2,346	$	595,806	$	26,123	$	469,133	$	42,371	$	207,332	$	2,346
IRLCs		86,293		1,490		58,021		591			17,419		200		—		—		—		—		—		—
Forward sales contracts		102,411		215		67,027		(517	)		26,748		87		—		—		—		—		—		—
TBA Securities		—		—		—		—			—		—		—		—		—		—		—		—
Credit contracts		—		—		—		—			—		—		82,674		—		88,848		—		96,228		—
Other		—		—		—		—			—		—		13,859		600		—		—		—		—

Total	$	784,510	$	27,828	$	594,181	$	42,445		$	251,499	$	2,633	$	692,339	$	26,723	$	557,981	$	42,371	$	303,560	$	2,346


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

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

Interest Rate Swaps.In 2008, the Corporation implemented an interest rate swap program for commercial loan customers. The Back-to-Back Program 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 under SFAS 133, 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 on which the potential borrower has set the interest rate for the loan by entering into an IRLC. 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.

IRLCs are derivatives pursuant to SFAS 133 and do not qualify for hedge accounting. IRLCs generally have a term of up to 60 days before the closing of the loan. During this period, the value of the lock changes with changes in interest rates. The IRLC 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” (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 an IRLC at one lender and enter into a new lower interest rate lock 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. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment under the provisions of the Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (“SAB 109”).

During the term of an interest rate lock commitment, the Corporation has the risk that interest rates will change from the rate quoted to the borrower. The Corporation economically hedges the risk of changing interest rates 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 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 to provide an economic hedge against those changes in fair value on a significant portion of the warehouse.

Effective August 1, 2008, the Corporation elected the fair value option, under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), on a prospective basis, for newly originated conforming fixed-rate and adjustable-rate first mortgage warehouse loans. Prior to adoption of SFAS 159, all warehouse loans were carried at the lower of cost or market and a SFAS 133 hedging program was utilized on its mortgage loans held for sale to gain protection for the changes in fair value of the mortgage loans held for sale and the forward sales contracts. As such, both the 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. Upon adoption of SFAS 159, the Corporation elected to prospectively account for substantially all of its mortgage loan warehouse products at fair value upon origination and correspondingly discontinued the application of SFAS 133 hedging relationships for these new originations.

The Corporation periodically enters into derivative contracts by purchasing TBA Securities which are utilized as economic hedges of its MSRs to minimize the effects of loss of value of MSRs associated with increase prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSRs generally will increase while the value of the hedge instruments will decline. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. The Corporation held no outstanding TBA Securities contracts as of June 30, 2009, December 31, 2008 or June 30, 2008.

Credit contracts.Prior to implementation of the Back-to-Back Program, certain of the Corporation’s commercial loan customers entered into interest rate swaps with unaffiliated dealer counterparties. The Corporation entered into swap participations with these dealer counterparties whereby the Corporation guaranteed payment in the event that the counterparty experienced a loss on the interest rate swap due to a failure to pay by the Corporation’s commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by monitoring the creditworthiness of its commercial loan customers, which is based on the normal credit review process the Corporation would have performed had it entered into these derivative instruments directly with the commercial loan customers. At June 30, 2009, the remaining terms on these swap participation agreements generally ranged from one to nine years. The Corporation’s maximum estimated exposure to written swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $8.8 million as of June 30, 2009. The fair values of the written swap participations were not material at June 30, 2009, December 31, 2008 and June 30, 2008.

Gains and losses recognized in income on non-designated hedging instruments under SFAS 133 for the quarters ended June 30, 2009 and 2008 are as follows:


		Amount of Gain / (Loss)
Derivatives not		Recognized in Income on
designated as hedging	Location of Gain / (Loss)	Derivative
instruments under	Recognized in Income on	Quarter ended,			Quarter ended,
SFAS 133	Derivative	June 30, 2009			June 30, 2008
IRLCs	Other income	$	(918	)	$	4
Forward sales contracts	Other income		1,354			231
TBA Securities	Other income		(2,317	)		(41	)
Credit contracts	Other income		—			—
Other	Other expenses		(600	)		—

Total		$	(2,481	)	$	194

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of “credit risk”—the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporation’s Asset and Liability Committee, and only within the Corporation’s Board of Directors Credit Committee approved credit exposure limits. Where contracts have been created for customers, the Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements using standard forms published by the International Swaps and Derivatives Association (“ISDA”). These agreements are to include thresholds of credit exposure or the maximum amount of unsecured credit exposure which the Corporation is willing to assume. Beyond the threshold levels, collateral in the form of securities made available from the investment portfolio or other forms of collateral acceptable under the bilateral collateral agreements are provided. The threshold levels for each counterparty are established by the Corporation’s Asset and Liability Committee. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBSs. Collateral posted against derivative liabilities was $60.8 million, $99.4 million and $21.5 million as of June 30, 2009, December 31, 2008 and June 30, 2008, respectively.

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
	Quarter ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Components of Net Periodic Pension Cost
Service Cost	$	1,322		$	1,354		$	2,645		$	2,708
Interest Cost		2,751			2,580			5,501			5,160
Expected return on assets		(2,805	)		(2,923	)		(5,611	)		(5,846	)
Amortization of unrecognized prior service costs		86			40			171			80
Cumulative net loss		757			993			1,516			1,985

Net periodic pension cost	$	2,111		$	2,044		$	4,222		$	4,087


	Postretirement Benefits
	Quarter ended					Six months ended
	June 30,					June 30,
	2009		2008			2009			2008
Components of Net Periodic Postretirement Cost
Service Cost	$	15	$	248		$	30		$	497
Interest Cost		299		443			598			886
Amortization of unrecognized prior service costs		—		(135	)		—			(271	)
Cumulative net loss		9		71			17			141

Net Postretirement Benefit Cost		323		627			645			1,253
Curtailment Gain		—		—			(9,543	)		—

Net periodic postretirement (benefit)/cost	$	323	$	627		$	(8,898	)	$	1,253

In January 2009, FirstMerit announced to employees that the Corporation’s subsidy for retiree medical for current eligible active employees will be discontinued effective March 1, 2009. Eligible employees who retired on or prior to March 1, 2009, were offered subsidized retiree medical coverage until age 65. Employees who retire after March 1, 2009 will not receive a Corporation subsidy toward retiree medical coverage. The elimination of Corporation subsidized retiree medical coverage resulted in an accounting curtailment gain under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”.

The Corporation maintains a savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all full-time and part-time employees after three months of continuous employment. The savings plan was approved for non-vested employees in the defined benefit pension plan and new hires as of January 1, 2007. Effective January 1, 2009, the Corporation has suspended its matching contribution to the savings plan.

10.Fair Value — As defined in SFAS 157, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Corporation’s principal market. 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.

SFAS 157 establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as follow:

	•		Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

	•		Level 2 — Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

	•		Level 3 — Valuations based on unobservable inputs significant to the overall fair value measurement.

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.

Financial Instruments Measured at Fair Value

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:


			Internal models		Internal models
	Quoted market		with significant		with significant
	prices in active		observable market		unobservable
	markets		parameters		market parameters
Quarter ended June 30, 2009	Level 1		Level 2		Level 3		Total

Available-for-sale securities	$	3,056	$	2,503,063	$	33,279	$	2,539,398
Residential loans held for sale		—		20,581		—		20,581
Derivative assets		—		27,828		—		27,828

Total assets at fair value on a recurring basis	$	3,056	$	2,551,472	$	33,279	$	2,587,807


Derivative liabilities		—		63,105		—		63,105

Total liabilities at fair value on a recurring basis	$	—	$	63,105	$	—	$	63,105

Available-for-sale securities.Where 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.

For certain available-for-sale securities, the Corporation obtains fair value measurements from an independent third party pricing service or independent brokers. The detail by level is shown in the table below.


			Level 2				Level 3
			Independent				Independent
	# Issues		Pricing Service		# Issues		Broker Quotes

U.S. States and political subdivisions		465	$	285,310		—	$	—
Residential mortgage-backed securities:
U.S. Government agencies		170		1,649,194		—		—
Residential collateralized mortgage securities:
U.S. Government agencies		50		550,806		1		5
Non-agency		2		17,186		1		18
Corporate debt securities		—		—		8		33,256

		687	$	2,502,496		10	$	33,279

Available-for-sale securities classified as Level 2 are valued using the prices obtained from an independent pricing service. The prices are not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agency obligations and MBSs that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. CMOs, 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 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. On a quarterly basis, the Corporation obtains from the independent pricing service the inputs used to value a sample of securities held in portfolio. The Corporation reviews these inputs to ensure the appropriate classification, within the fair value hierarchy, is ascribed to a fair value measurement in its entirety. In addition, all fair value measurement are reviewed to determine the reasonableness of the measurement relative to changes in observable market data and market information received from outside market participants and analysts.

Available-for-sale securities classified as level 3 securities are primarily single issuer trust preferred securities. These trust preferred securities, which represent 1% of the portfolio at fair value, are valued based on the average of two non-binding broker quotes. Since these securities are thinly traded, the Corporation has determined that the using an average of two non-binding broker quotes is a more conservative valuation methodology. The non-binding nature of the pricing results in a classification as Level 3.

Loans held for sale.Effective August 1, 2008, residential mortgage loans originated subsequent to this date are recorded at fair value in accordance with SFAS 159. Prior to this, these residential loans had been recorded at the lower of cost or market value. These loans are regularly traded in active markets through programs offered by the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“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.

Derivatives.The Corporation’s derivatives include interest rate swaps and IRLCs 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 IRLCs 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 IRLCs under the provisions of the SAB 109. An IRLC 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” (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 an IRLC at one lender and enter into a new lower interest rate lock 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 IRLCs 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 due to a counterparty’s inability to pay any uncollateralized position have been incurred. There was no significant change in value of derivative assets and liabilities attributed to credit risk in the three-month period ended June 30, 2009.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized follows:


											Total changes
			Total		Purchases, sales				Fair value		in fair values
	Fair Value		unrealized		issuances and				quarter ended		included in current
Quarter ended June 30, 2009	March 31, 2009		gains/(losses) (a)		settlements, net		Transfers		June 30, 2009		period earnings

Available-for-sale securities	$	26,811	$	6,468	$	—	$	—	$	33,279	$	—


(a)		Reported in other comprehensive income (loss)


											Total changes
			Total		Purchases, sales				Fair value		in fair values
	Fair Value		unrealized		issuances and				six months ended		included in current
Six months ended June 30, 2009	January 1, 2009		gains/(losses)(a)		settlements, net		Transfers		June 30, 2009		period earnings

Available-for-sale securities	$	31,384	$	1,895	$	—	$	—	$	33,279	$	—


(a)		Reported in other comprehensive income (loss)

The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring basis:


			Internal models		Internal models
	Quoted market		with significant		with significant
	prices in active		observable market		unobservable
	markets		parameters		market parameters
Quarter ended June 30, 2009	Level 1		Level 2		Level 3		Total

Mortgage servicing rights	$	—	$	—	$	22,013	$	22,013
Impaired and nonaccrual loans		—		—		77,765		77,765
Other property (1)		—		—		13,484		13,484

Total assets at fair value on a nonrecurring basis	$	—	$	—	$	113,262	$	113,262


(1)		Represents the fair value, and related change in the value, of foreclosed real estate and other collateral owned by the Corporation during the period.

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

The Corporation utilizes a third party vendor to perform the modeling to estimate the fair value of its mortgage servicing rights. The Corporation reviews the estimated fair values and assumptions used by the third party in the model on a quarterly basis. The Corporation also

compares the estimates of fair value and assumptions to recent market activity and against its own experience.

Prepayment Speeds: Generally, when market interest rates decline and other factors favorable to prepayments occur there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, the Corporation utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including the Corporation’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis.

Discount Rate: Represents the rate at which expected cash flows are discounted to arrive at the net present value of servicing income. Discount rates will change with market conditions (i.e., supply vs. demand) and be reflective of the yields expected to be earned by market participants investing in mortgage servicing rights.

Cost to Service: Expected costs to service are estimated based upon the incremental costs that a market participant would use in evaluating the potential acquisition of mortgage servicing rights.

Float Income: Estimated float income is driven by expected float balances (principal, interest and escrow payments that are held pending remittance to the investor or other third party) and current market interest rates, including the six month average of the three-month LIBOR index, which are updated on a monthly basis for purposes of estimating the fair value of mortgage servicing rights.

Impaired and nonaccrual loans.Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. The Corporation measures fair value based on the value of the collateral securing the loans. 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. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3.

Other Property.Other property includes foreclosed assets and properties securing residential and commercial loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carry value or fair value less costs to sell. Fair value is generally based upon internal

estimates and third party appraisals or non-binding broker quotes and, accordingly, considered a Level 3 classification.

Financial instruments recorded using SFAS 159

Under SFAS 159, the Corporation may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in net income. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

Additionally, the transaction provisions of SFAS 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in beginning retained earnings and future changes in fair value reported in net income. The Corporation did not elect the fair value option for any existing position at January 1, 2008.

Effective August 1, 2008, the Corporation elected the fair value option under SFAS 159 for newly originated conforming fixed-rate and adjustable-rate first mortgage loans held for sale. Prior to this, these residential mortgage loans had been recorded at the lower of cost or market value. These loans are intended for sale and were hedged with derivative instruments. The Corporation elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification. The fair value option was not elected for loans held for investment.

The following table reflects the differences between the fair value carrying amount of residential mortgages held for sale and the aggregate unpaid principal amount we are contractually entitled to receive at maturity. None of these loans were 90 days or more past due, nor were any on nonaccrual status.

Fair Value

Carrying Amount

Fair Value

Aggregate Unpaid

Less Aggregate

June 30, 2009

Carrying Amount

Principal

Unpaid Principal

Loans held for sale reported at fair value

20,581

20,364

217

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method.

The assets accounted for under SFAS 159 are measured at fair value with changes in fair value recognized in current earnings. The changes in fair value included in current period earnings for residential loans held for sale measured at fair value are shown by income statement line item, below:


	Three-Months Ended			Six-Months Ended
	June 30, 2009			June 30, 2009
Changes in fair value included in net income:
Loan sales and servicing income	$	(493	)	$	63

Disclosures about Fair Value of Financial Instruments

The carrying amount and fair value of the Corporation’s financial instruments are shown below in accordance with the requirements of FSP FAS 107-1.

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


	June 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Investment securities	$	2,703,257	$	2,703,257	$	2,772,848	$	2,772,848
Net loans		7,033,924		6,486,638		7,321,856		6,727,645
Loan held for sale		20,780		20,780		11,141		11,141
Cash and due from banks		156,590		156,590		178,406		178,406
Accrued interest receivable		40,133		40,133		42,481		42,481
Mortgage servicing rights		20,828		22,013		18,778		18,803
Derivative assets		27,828		27,828		42,371		42,371

Financial liabilities:
Deposits	$	7,541,220	$	7,463,398	$	7,597,679	$	7,620,870
Securities sold under agreements to repurchase		1,069,945		1,071,743		921,390		921,808
Wholesale borrowings		924,438		938,140		1,344,195		1,350,942
Accrued interest payable		25,255		25,255		29,018		29,018
Derivative liabilities		63,105		63,105		99,882		99,882

Investment Securities— See Financial Instruments Measured at Fair Value above.

Net loans— The 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.

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.

Cash and due from banks— The carrying amount is considered a reasonable estimate of fair value.

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— SFAS 107 defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, to be 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.

Securities sold under agreements to repurchase and wholesale borrowings— The carrying amount of variable rate borrowings including federal funds purchased is considered to be their fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation’s long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

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

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

11. Contingencies — The nature of the Corporation’s business results in a certain amount of litigation. Accordingly, the Corporation and its subsidiaries are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with legal counsel, is of the opinion that the ultimate liability of such pending matters will not have a material effect on the Corporation’s financial condition and results of operations.

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

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential


FIRSTMERIT CORPORATION AND SUBSIDIARIES	Three months ended								Year ended								Three months ended
(Dollars in thousands)	June 30, 2009								December 31, 2008								June 30, 2008
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate


ASSETS
Cash and due from banks	$	194,381							$	177,089							$	173,044
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,205,221			24,455		4.45	%		1,985,026			94,260		4.75	%		2,021,209			23,609		4.70	%
Obligations of states and political subdivisions (tax exempt)		316,703			4,910		6.22	%		294,724			17,910		6.08	%		279,757			4,270		6.14	%
Other securities and federal funds sold		211,947			2,204		4.17	%		216,794			11,326		5.22	%		214,580			2,777		5.21	%


Total investment securities and federal funds sold		2,733,871			31,569		4.63	%		2,496,544			123,496		4.95	%		2,515,546			30,656		4.90	%
Loans held for sale		20,643			277		5.38	%		29,419			1,602		5.45	%		48,079			651		5.45	%
Loans		7,246,752			86,004		4.76	%		7,203,946			434,704		6.03	%		7,140,627			105,889		5.96	%


Total earning assets		10,001,266			117,850		4.73	%		9,729,909			559,802		5.75	%		9,704,252			137,196		5.69	%

Allowance for loan losses		(104,864	)							(96,714	)							(94,002	)
Other assets		793,445								739,158								737,175


Total assets	$	10,884,228							$	10,549,442							$	10,520,469


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	1,891,792			—		—		$	1,530,021			—		—		$	1,518,841			—		—
Demand — interest bearing		671,235			159		0.10	%		687,160			2,514		0.37	%		709,922			591		0.33	%
Savings and money market accounts		2,810,155			5,452		0.78	%		2,398,778			29,839		1.24	%		2,366,296			6,500		1.10	%
Certificates and other time deposits		2,241,644			15,325		2.74	%		2,801,623			105,853		3.78	%		2,744,447			26,587		3.90	%


Total deposits		7,614,826			20,936		1.10	%		7,417,582			138,206		1.86	%		7,339,506			33,678		1.85	%

Securities sold under agreements to repurchase		945,178			1,211		0.51	%		1,343,441			31,857		2.37	%		1,312,436			8,319		2.55	%
Wholesale borrowings		1,019,786			6,897		2.71	%		663,109			27,574		4.16	%		711,132			6,243		3.53	%


Total interest bearing liabilities		7,687,998			29,044		1.52	%		7,894,111			197,637		2.50	%		7,844,233			48,240		2.47	%

Other liabilities		284,810								189,222								204,626

Shareholders’ equity		1,019,628								936,088								952,769


Total liabilities and shareholders’ equity	$	10,884,228							$	10,549,442							$	10,520,469


Net yield on earning assets	$	10,001,266			88,806		3.56	%	$	9,729,909			362,165		3.72	%	$	9,704,252			88,956		3.69	%


Interest rate spread							3.21	%							3.25	%							3.22	%

Note:

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

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential


FIRSTMERIT CORPORATION AND SUBSIDIARIES	Six months ended								Year ended								Six months ended
(Dollars in thousands)	June 30, 2009								December 31, 2008								June 30, 2008
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate


ASSETS
Cash and due from banks	$	202,254							$	177,089							$	172,036
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,227,999			50,409		4.56	%		1,985,026			94,260		4.75	%		2,012,934			46,902		4.69	%
Obligations of states and political subdivisions (tax exempt)		318,811			9,824		6.21	%		294,724			17,910		6.08	%		280,338			8,533		6.12	%
Other securities and federal funds sold		212,467			4,545		4.31	%		216,794			11,326		5.22	%		218,594			5,829		5.36	%


Total investment securities and federal funds sold		2,759,277			64,778		4.73	%		2,496,544			123,496		4.95	%		2,511,866			61,264		4.90	%

Loans held for sale		21,938			599		5.51	%		29,419			1,602		5.45	%		48,573			1,323		5.48	%
Loans		7,313,516			173,512		4.78	%		7,203,946			434,704		6.03	%		7,082,279			221,529		6.29	%


Total earning assets		10,094,731			238,889		4.77	%		9,729,909			559,802		5.75	%		9,642,718			284,116		5.93	%

Allowance for loan losses		(103,708	)							(96,714	)							(93,903	)
Other assets		805,720								739,158								729,832


Total assets	$	10,998,997							$	10,549,442							$	10,450,683


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	1,830,181			—		—		$	1,530,021			—		—		$	1,482,865			—		—
Demand — interest bearing		663,301			314		0.10	%		687,160			2,514		0.37	%		706,018			1,555		0.44	%
Savings and money market accounts		2,724,636			10,829		0.80	%		2,398,778			29,839		1.24	%		2,342,598			16,143		1.39	%
Certificates and other time deposits		2,411,274			33,913		2.84	%		2,801,623			105,853		3.78	%		2,803,321			58,574		4.20	%


Total deposits		7,629,392			45,056		1.19	%		7,417,582			138,206		1.86	%		7,334,802			76,272		2.09	%

Securities sold under agreements to repurchase		943,156			2,210		0.47	%		1,343,441			31,857		2.37	%		1,350,737			19,861		2.96	%
Wholesale borrowings		1,085,417			14,240		2.65	%		663,109			27,574		4.16	%		625,517			13,332		4.29	%


Total interest bearing liabilities		7,827,784			61,506		1.58	%		7,894,111			197,637		2.50	%		7,828,191			109,465		2.81	%

Other liabilities		294,659								189,222								197,020

Shareholders’ equity		1,046,373								936,088								942,607


Total liabilities and shareholders’ equity	$	10,998,997							$	10,549,442							$	10,450,683


Net yield on earning assets	$	10,094,731			177,383		3.54	%	$	9,729,909			362,165		3.72	%	$	9,642,718			174,651		3.64	%


Interest rate spread							3.19	%							3.25	%							3.12	%

Note:

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

SUMMARY

FirstMerit Corporation reported second quarter 2009 net income of $15.5 million, or $0.13 per diluted share. This compares with $29.4 million, or $0.34 per diluted share, for the first quarter 2009 and $29.2 million, or $0.36 per diluted share, for the second quarter 2008. Included in the second quarter 2009 results was a $3.7 million after-tax FDIC special assessment fee ($0.04 per share). Also included in the second quarter 2009 results was a $4.5 million after-tax expense ($0.06 per share) associated with the unamortized discount on the preferred stock under the TARP program. The Corporation’s provision for loan losses in the second quarter 2009 exceeded net charge-offs by $5.0 million. The after-tax impact to net income from this reserve build action was $3.6 million ($0.04 per share).

On April 22, FirstMerit repurchased all of the $125 million in preferred, non-voting stock that was sold to the Treasury Department under the CPP. On May 27, 2009, FirstMerit repurchased a warrant to issue common shares which was issued to the Treasury for $5 million. This action completes FirstMerit’s participation in CPP under TARP.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the second quarter 2009 were 6.27% and 0.57%, respectively, compared with 12.39% and 1.07% for the first quarter 2009 and 12.31% and 1.11% for the second quarter 2008.

Net interest margin was 3.56% for the second quarter of 2009 compared with 3.53% for the first quarter of 2009 and 3.69% for the second quarter of 2008. The margin expansion in the quarter was primarily driven by lower funding costs due to a continued shift in deposit mix with increased emphasis on core deposit products and lower certificate of deposit balances.

Average loans during the second quarter of 2009 decreased $134.3 million, or 1.82%, compared to the first quarter of 2009 and increased $106.1 million, or 1.49%, compared with the second quarter of 2008. The increase in the second quarter 2009 as compared to second quarter 2008 was due to commercial loan growth of $193.8 million, or 4.76%. The reduction in loans in the second quarter of 2009 compared to the prior quarter reflects the current economic cycle in which business owners have reduced inventory and receivables and are focused on paying down existing debt.

During the second quarter of 2009 the Corporation increased its average core deposits, which excludes time deposits, by $311.9 million, or 6.16%, compared with the first quarter of 2009, and $778.1 million, or 16.93%, compared with the second quarter of 2008. Average deposits during the second quarter of 2009 decreased $29.3 million, or 0.38%, compared with the first quarter of 2009 and increased $275.3 million, or 3.75%, compared with the second quarter of 2008.

Average investments decreased $51.1 million, or 1.83%, compared with the first quarter of 2009 and increased $218.3 million, or 8.68%, over the second quarter of 2008. The decrease in the quarter was primarily attributable to principal repayment on mortgage-backed securities. The year-over-year increase is a result of the leverage strategy implemented in the fourth quarter of 2008.

Net interest income on a fully tax-equivalent (“FTE”) basis was $88.8 million in the second quarter 2009 compared with $88.6 million in the first quarter of 2009 and $89.0 million in the second quarter of 2008. Compared with the first quarter of 2009, average earning assets decreased $188.0 million, or 1.84% and increased $297.0 million, or 3.06% compared to the second quarter of 2008.

Noninterest income net of securities transactions for the second quarter of 2009 was $49.7 million, a decrease of $5.5 million, or 10.00%, from the first quarter of 2009 and an increase of $1.0 million, or 1.96%, from the second quarter of 2008. Noninterest income in the first quarter of 2009 included a one-time $9.5 million gain due to curtailment of the postretirement medical benefit plan for active employees.

Other income, net of securities gains, as a percentage of net revenue for the second quarter of 2009 was 35.87% compared with 38.39% for first quarter of 2009 and 35.38% for the second quarter of 2008. Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the second quarter of 2009 was $90.6 million, an increase of $7.4 million, or 8.85%, from the first quarter of 2009 and an increase of $10.0 million, or 12.43%, from the second quarter of 2008. Included in the second quarter 2009 expenses was the FDIC special assessment fee of $5.1 million.

The reported efficiency ratio for the second quarter of 2009 was 65.34%, compared with 57.81% for the first quarter of 2009 and 58.38% for the second quarter of 2008. Absent the $5.1 million FDIC special assessment fee, the efficiency ratio is 61.66%.

Net charge-offs totaled $21.6 million, or 1.19% of average loans, in the second quarter of 2009 compared with $15.6 million, or 0.86% of average loans, in the first quarter 2009 and $10.7 million, or 0.60% of average loans, in the second quarter of 2008.

Nonperforming assets at June 30, 2009 represented 1.03% of period-end loans plus other real estate compared with 1.04% at March 31, 2009 and 0.57% at June 30, 2008. Nonperforming assets totaled $73.4 million at June 30, 2009, an increase of $31.7 million compared with June 30, 2008. Significantly, nonperforming assets in second quarter 2009 decreased $2.9 million, or 3.79%, from first quarter 2009. This decrease reflects strong workout and collection activity coupled with timely charge-off recognition.

The allowance for loan losses totaled $111.2 million at June 30, 2009, an increase of $5.0 million from March 31, 2009. Given the current economic environment, the Corporation has continued a strategy to build reserve levels and year-to-date has provided $7.6 million in excess of net charge-offs to the allowance for loan losses. At June 30, 2009, the allowance for loan losses was 1.56% of period-end loans compared with 1.45% at March 31, 2009 and 1.36% at June 30, 2008. The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments. For comparative purposes the allowance for credit losses was 1.64% at June 30, 2009, compared with 1.53% at March 31, 2009 and 1.46% at June 30, 2008. The allowance for credit losses to nonperforming loans was 184.71% at June 30, 2009, compared with 159.93% at March 31, 2009 and 288.50% at June 30, 2008. Given the current environment, Management increased the allowance for loan losses at June 30, 2009. The increase

in the allowance for loan losses in second quarter 2009 is attributable to the migration of some commercial credits within pass credit categories to higher risk levels as well as the consumer retail portfolio showing additional stress related to unemployment rates under current economic conditions.

The Corporation’s total assets at June 30, 2009 were $10.7 billion, a decrease of $275.2 million, or 2.51%, compared with March 31, 2009 and an increase of $132.2 million, or 1.25%, compared with June 30, 2008. The decrease in total assets compared with March 31, 2009, was due to a $205 million decrease in total loans and the $125 million repurchase of TARP preferred shares. These reductions were partially offset by the $61 million of equity raised through the Corporation’s at-the-market stock offering. Growth in investment securities of $233.6 million, or 9.46%, in the fourth quarter of 2008, compared with June 30, 2008, provided the majority of the overall asset growth. Total loans decreased $205.6 million compared with March 31, 2009.

Total deposits were $7.5 billion at June 30, 2009, a decrease of $227.0 million, or 2.96%, from March 31, 2009 and an increase of $174.0 million, or 2.39%, from June 30, 2008. The increase compared with June 30, 2008 was driven by an overall increase in savings and demand deposits. Core deposits totaled $5.4 billion at June 30, 2009, an increase of $103.4 million, or 1.96%, from March 31, 2009 and an increase of $741.2 million, or 15.96%, from June 30, 2008.

Shareholders’ equity was $1,022.6 million at June 30, 2009, compared with $1,084.3 million at March 31, 2009 and $924.4 million at June 30, 2008. The Corporation increased its strong capital position as tangible common equity to assets was 8.36% at June 30, 2009, compared with 7.56% and 7.52% at March 31, 2009 and June 30, 2008, respectively. The common dividend per share paid in the second quarter 2009 was $0.16 as well as a $0.13 per share dividend of common stock.

During the second quarter of 2009, the Corporation entered into a Distribution Agency Agreement with Credit Suisse Securities (USA) LLC pursuant to which the Corporation, from time to time, offered and sold shares of the Corporation’s common stock. Sales of the Common Shares were made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, in block transaction or as otherwise agreed with Credit Suisse. During this time, 3.3 million shares were sold at an average value net of broker’s fees of $18.36 per share.

RESULTS OF OPERATION

Net Interest Income

Net interest income, the Corporation’s principal source of earnings, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest paid on interest-bearing funds (namely customer deposits, securities sold under agreements to repurchase and wholesale borrowings). Net interest income for the quarter ended June 30, 2009 was $87.1 million compared to $87.5 million for the quarter ended June 30, 2008. For the purpose of this remaining discussion, net interest income is presented on an FTE basis, to provide a comparison among all types of interest earning assets. That is, interest on tax-free securities and tax-exempt loans has been restated as if such interest were taxed at the statutory Federal income tax rate of 35%, adjusted for the non-deductible portion of interest expense

incurred to acquire the tax-free assets. Net interest income presented on an FTE basis is a non-GAAP financial measure widely used by financial services organizations. The FTE adjustment was $1.7 million and $1.4 million for the quarters ending June 30, 2009 and 2008, respectively. The FTE adjustment was $3.4 million and $2.8 million for the six months ending June 30, 2009 and 2008, respectively.

FTE net interest income for the quarter ended June 30, 2009 was $88.8 million compared to $89.0 million for the three months ended June 30, 2008. FTE net interest income for the six months ended June 30, 2009 was $177.4 million compared to $174.7 million for six months ended June 30, 2008.

As illustrated in the following rate/volume analysis table, interest income and interest expense both decreased due to the falling interest rate environment. The Federal Reserve discount rate decreased 25 basis points in April 2008, 100 basis points in October 2008, and 75 to 100 basis points again in December 2008 and rates held flat for the first two quarters of 2009. The section entitled “Financial Condition” contains more discussion about changes in earning assets and funding sources.


	Quarters ended June 30, 2009 and 2008									Six months ended June 30, 2009 and 2008
RATE/VOLUME ANALYSIS	Increases (Decreases)									Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME — FTE
Investment securities	$	2,635		$	(1,722	)	$	913		$	6,017		$	(2,503	)	$	3,514
Loans held for sale		(368	)		(6	)		(374	)		(727	)		3			(724	)
Loans		1,551			(21,436	)		(19,885	)		7,084			(55,101	)		(48,017	)

Total interest income — FTE	$	3,818		$	(23,164	)	$	(19,346	)	$	12,374		$	(57,601	)	$	(45,227	)

INTEREST EXPENSE
Demand deposits-interest bearing	$	(30	)	$	(402	)	$	(432	)	$	(89	)	$	(1,152	)	$	(1,241	)
Savings and money market accounts		1,079			(2,127	)		(1,048	)		2,322			(7,636	)		(5,314	)
Certificates of deposits and other time deposits		(4,321	)		(6,941	)		(11,262	)		(7,390	)		(17,271	)		(24,661	)
Securities sold under agreements to repurchase		(1,846	)		(5,262	)		(7,108	)		(4,662	)		(12,989	)		(17,651	)
Wholesale borrowings		2,302			(1,648	)		654			7,328			(6,420	)		908

Total interest expense	$	(2,816	)	$	(16,380	)	$	(19,196	)	$	(2,491	)	$	(45,468	)	$	(47,959	)

Net interest income — FTE	$	6,634		$	(6,784	)	$	(150	)	$	14,865		$	(12,133	)	$	2,732

Net Interest Margin

The following table provides 2009 FTE net interest income and net interest margin totals as well as 2008 comparative amounts:


	Quarters ended						Six months
	June 30,						June 30,
(Dollars in thousands)	2009			2008			2009			2008

Net interest income	$	87,115		$	87,531		$	174,009		$	171,830
Tax equivalent adjustment		1,691			1,425			3,374			2,821

Net interest income — FTE	$	88,806		$	88,956		$	177,383		$	174,651


Average earning assets	$	10,001,266		$	9,704,252		$	10,094,731		$	9,642,718

Net interest margin — FTE		3.56	%		3.69	%		3.54	%		3.64	%

Average loans outstanding for the current year and prior year second quarters totaled $7.2 billion and $7.1 billion, respectively. Increases in average loan balances from second quarter 2008 to the second quarter 2009 occurred in commercial and home equity, while mortgage loans, installment loans, credit card loans, and leases declined.

Specific changes in average loans outstanding, compared to the second quarter 2008, were as follows: commercial loans were up $193.8 million or 4.76%; home equity loans were up $56.5 million or 8.16%; mortgage loans were down $63.2 million or 10.95%; installment loans, both direct and indirect declined $71.9 million or 4.54%; credit card loans declined $0.7 million or 0.44%; and leases decreased $8.5 million or 12.18%. The majority of fixed-rate mortgage loan originations are sold to investors through the secondary mortgage loan market. Average outstanding loans for the 2009 and 2008 second quarters equaled 72.46% and 73.58% of average earning assets, respectively.

Average deposits were $7.6 billion during the 2009 second quarter, up $275.3 million, or 3.75%, from the same period last year. For the quarter ended June 30, 2009, average core deposits (which are defined as checking accounts, savings accounts and money market savings products) increased $778.1 million, or 14.48%, and represented 70.56% of total average deposits, compared to 62.61% for the 2008 second quarter. Average certificates of deposit (“CDs”) decreased $502.8 million, or 18.32%, compared to the prior year quarter. Average wholesale borrowings increased $308.7 million, and as a percentage of total interest-bearing funds equaled 13.26% for the 2009 second quarter and 9.07% for the same quarter one year ago. Securities sold under agreements to repurchase decreased $367.3 million, and as a percentage of total interest bearing funds equaled 12.29% for the 2009 second quarter and 16.73% for the 2008 second quarter. Average interest-bearing liabilities funded 76.87% of average earning assets in the current year quarter and 80.83% during the quarter ended June 30, 2008.

Other Income

Other (non-interest) income for the quarter ended June 30, 2009 totaled $50.8 million, an increase of $2.1 million from the $48.8 million earned during the same period one year ago.

Other income, net of securities gains, as a percentage of net revenue for the second quarter was 35.87% compared to 35.38% for the same quarter one year ago. Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

The primary changes in other income for the 2009 second quarter as compared to the second quarter of 2008, were as follows: trust department income was $5.4 million, down 6.63%, due to the disruption in the equity markets; investment services and insurance was $2.3 million, down 18.64%; loan sales and servicing income was $3.8 million, an increase of $1.9 million, primarily attributable to refinancings in the current low rate mortgage market environment; bank owned life insurance income was $3.0 million, down 7.21%, due to decreasing market rates; and other operating income was $4.8 million, an increase of $0.8 million.

The changes in other income for the six months ended June 30, 2009 compared to June 30, 2008 were similar to the quarterly analysis. The primary changes in other income for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, were as follows: trust department income was $10.2 million, down 9.28% due to the disruption in the equity markets; investment services and insurance income was $5.2 million, down 8.26%; and loan sales and servicing income was $6.1 million, an increase of $2.9 million, primarily attributable to refinancings in the current low rate mortgage market environment. Included in other income in the first half of 2009 was a $9.5 million adjustment due to the curtailment of the postretirement medical plan for active employees. Included in other income in the first half of 2008 was a $7.9 million gain from the partial redemption of Visa, Inc. shares.

A significant component of loan sales and servicing income is the income derived from mortgage servicing activities. The following is a summary of changes in capitalized MSRs, net of accumulated amortization and valuation allowance, included in the unaudited consolidated balance sheets:


	Quarter ended			Quarter ended			Quarter ended			Quarter ended			Quarter ended
	June 30,			March 31,			December 31			September 30,			June 30,
(Dollars in thousands)	2009			2009			2008			2008			2008

Balance at beginning of period	$	19,061		$	18,778		$	19,863		$	19,869		$	19,169
Addition of mortgage servicing rights		1,755			1,437			468			637			1,165
Amortization		(1,137	)		(790	)		(768	)		(643	)		(666	)
Changes in allowance for impairment		1,149			(364	)		(785	)		—			201

Balance at end of period	$	20,828		$	19,061		$	18,778		$	19,863		$	19,869

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. As required, the Corporation disaggregates its servicing rights portfolio based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. If any impairment results after current market assumptions are applied, the value of the servicing rights is reduced through the use of a valuation allowance, the balance of which is $0 million, $0.8 million and $0 million at June 30, 2009, December 31, 2008 and June 30, 2008, respectively.

These MSR balances represent the rights to service approximately $2.0 billion of mortgage loans for all periods at June 30, 2009, December 31, 2008, and June 30, 2008. The portfolio primarily consists of conventional mortgages.

The Corporation continues to focus upon non-interest income (fee income) as a means by which to diversify revenue.

Other Expenses

Other (non-interest) expenses totaled $90.6 million for the second quarter 2009 compared to $80.6 million for the same 2008 quarter, an increase of $10.0 million, or 12.43%. Other expenses totaled $173.8 million for the six months ended June 30, 2009 compared to $161.8 million for the six months ended June 30, 2008, an increase of $12.0 million, or 7.41%.

For the three and six months ended June 30, 2009, increases in operating costs compared to the three and six months ended June 30, 2008 were primarily attributable to an increase in FDIC fees. FDIC expense was $8.3 million for the quarter ended June 30, 2009, as compared to $2.5 million for the quarter ended March 31, 2009 and $0.3 million for the quarter ended June 30, 2008. In May 2009, the FDIC levied a five-basis point emergency special assessment of $5.1 million based on the Bank’s average total assets as of June 30, 2009. This special assessment was to restore the deposit insurance reserve ratio to the 1.15% minimum mandated by the Federal Deposit Insurance Reform Act of 2005. In addition, the Corporation has experienced an overall increase in the FDIC deposit insurance assessment base of 15% over the prior quarter ended March 31, 2009, and 159% over the prior year quarter ended June 30, 2008, providing for expense increases of $0.4 million and $1.7 million, respectively, on average deposit liabilities. As discussed further in the Liquidity Risk Management of Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Corporation elected to participate in the FDIC’s Transaction Account Guarantee Program subsequent to December 5, 2008 which increased the Corporation’s base deposit assessment by $0.6 million for the six-months ended June 30, 2009. In May 2007, the FDIC awarded the Corporation a one-time credit of $8.6 million to be applied incrementally towards the Corporation’s quarterly FDIC assessment. This credit was exhausted in the prior quarter. This credit provided a $0.4 million reduction in expense during the prior quarter and $1.0 million in the three month period ended June 30, 2008.

The efficiency ratio of 65.34% for second quarter 2009 increased 696 basis points over the efficiency ratio of 58.38% recorded for the second quarter 2008. The efficiency ratio for the three months ended June 30, 2009 indicates 65.34 cents of operating costs were spent in order to generate each dollar of net revenue.

Federal Income Taxes

Federal income tax expense was $5.4 million and $12.0 million for the quarters ended June 30, 2009 and 2008, respectively. The effective federal income tax rate for the second quarter 2009 was 25.77%, compared to 29.20% for the same quarter 2008. For the six months ended June 30, 2009 and 2008, respectively, the effective tax rate was 27.16% and 29.19%. Pursuant the requirements under SFAS No. 109 “Accounting for Income Taxes” (“SFAS 109”) and FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) and

more fully described in Note 1 (Summary of Significant Accounting Policies) to the 2008 Form 10-K, tax reserves have been specifically estimated for potential at-risk items.

FINANCIAL CONDITION

Investment Securities

Available for sale securities are held primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, the Corporation’s investment policy is to invest in securities with low credit risk, such as U.S. Treasury securities, U.S. Government agency obligations, state and political obligations and mortgage-backed securities (“MBSs”). Investment securities totaled $2.7 billion at June 30, 2009, with net unrealized gains of $33.9 million, $2.8 billion at December 31, 2008, with net unrealized gains of $1.2 million, and $2.5 billion at June 30, 2008, with net unrealized losses of $30.0 million. The decrease in investments of $69.6 million or 2.51% from December 31, 2008 was primarily attributable to principal repayment on mortgage-backed securities. The increase in investments of $233.6 million or 9.45% from June 30, 2008 was a result of the leverage strategy implemented in the fourth quarter of 2008.

The fair value of investment securities is impacted by interest rates, credit spreads, and market volatility and illiquidity. The improvement in the net unrealized gain from year-end was the result of improving fair values in government agency securities.

The Corporation assesses other-than-temporary impairment (“OTTI”) for its debt securities in accordance with FSP FAS 115-2, which became effective for the Corporation on April 1, 2009. FSP 115-2 requires only the credit portion of OTTI charges to be recognized in current earnings for those debt securities where there is no intent to sell or it is more likely than not the Corporation would not be required to sell the security prior to expected recovery. The remaining portion of OTTI charges is to be included in accumulated other comprehensive loss, net of income tax. The adoption of FSP FAS 115-2 did not have a material impact on the Corporation’s consolidated financial condition or results of operations.

At least quarterly the Corporation conducts a comprehensive security-level impairment assessment. 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. Gross unrealized losses of $31.7 million as of June 30, 2009 were primarily concentrated within trust preferred securities held by the Corporation. The Corporation holds eight, single issuer, trust preferred securities. Such investments are less than 1% of the fair value of the entire investment portfolio. None of the bank 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 recent market conditions which have caused risk premiums to increase markedly resulting in the significant decline in the fair value of the Corporation’s trust preferred securities.

Further detail of the composition of the securities portfolio and discussion of the results of the most recent OTTI assessment are in Note 3 (Investment Securities).

Allowance for Credit Losses

The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.


	Quarter ended			Year Ended			Quarter ended
	June 30,			December 31,			June 30,
(In thousands)	2009			2008			2008

Allowance for Loan Losses
Allowance for loan losses-beginning of period	$	106,257		$	94,205		$	94,411
Provision for loan losses		26,521			58,603			14,565
Net charge-offs		(21,556	)		(49,051	)		(10,737	)

Allowance for loan losses-end of period	$	111,222		$	103,757		$	98,239


Reserve for Unfunded Lending Commitments

Balance at beginning of period	$	6,019		$	7,394		$	7,903
Provision for credit losses		35			(806	)		(593	)

Balance at end of period	$	6,054		$	6,588		$	7,310


Allowance for credit losses	$	117,276		$	110,345		$	105,549


Annualized net charge-offs as a % of average loans		1.19	%		0.68	%		0.60	%


Allowance for loan losses:
As a percentage of loans outstanding		1.56	%		1.40	%		1.36	%

As a percentage of nonperforming loans		175.17	%		198.76	%		268.52	%

As a multiple of annualized net charge offs		1.29	x		2.12	x		2.27	x


Allowance for credit losses:
As a percentage of loans outstanding		1.64	%		1.49	%		1.46	%

As a percentage of nonperforming loans		184.71	%		211.38	%		288.50	%

As a multiple of annualized net charge offs		1.36	x		2.25	x		2.44	x

The allowance for credit losses increased $6.9 million from December 31, 2008 to June 30, 2009, and increased $11.7 million from June 30, 2008 to June 30, 2009. The increase for both periods was attributable to additional reserves that were established to address identified risks associated with increasing unemployment rates and the decline in residential and commercial real estate values. The following tables show the overall trend in credit quality by specific asset and risk categories.


	At June 30, 2009
	Loan Type
			Commercial						Home		Credit		Res
	Commercial		R/E				Installment		Equity		Card		Mortgage
Allowance for Loan Losses Components:	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	8,930	$	51,603	$	—	$	—	$	—	$	—	$	—	$	60,533
Allowance		1,442		7,311		—		—		—		—		—		8,753
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		37,653		5,739		6,180										49,572
Grade 1 allowance		37		14		8										59
Grade 2 loan balance		99,771		107,078		1,473										208,322
Grade 2 allowance		165		653		3										821
Grade 3 loan balance		375,488		540,410		17,726										933,624
Grade 3 allowance		879		4,547		52										5,478
Grade 4 loan balance		1,053,613		1,648,118		32,316										2,734,047
Grade 4 allowance		7,728		30,877		241										38,846
Grade 5 (Special Mention) loan balance		53,765		37,871		1,620										93,256
Grade 5 allowance		1,351		1,797		38										3,186
Grade 6 (Substandard) loan balance		70,051		91,708		659										162,418
Grade 6 allowance		4,482		9,891		39										14,412
Grade 7 (Doubtful) loan balance		—		59		—										59
Grade 7 allowance		—		5		—										5
Consumer loans based on payment status:
Current loan balances								1,468,931		749,807		142,647		471,139		2,832,524
Current loans allowance								12,957		4,690		4,114		2,895		24,656
30 days past due loan balance								19,527		1,998		1,562		13,112		36,199
30 days past due allowance								2,566		545		742		523		4,376
60 days past due loan balance								5,794		1,864		1,407		3,196		12,261
60 days past due allowance								2,229		1,180		1,023		426		4,858
90+ days past due loan balance								2,959		441		2,488		16,443		22,331
90+ days past due allowance								1,903		449		2,338		1,082		5,772

Total loans	$	1,699,271	$	2,482,586	$	59,974	$	1,497,211	$	754,110	$	148,104	$	503,890	$	7,145,146

Total Allowance for Loan Losses	$	16,084	$	55,095	$	381	$	19,655	$	6,864	$	8,217	$	4,926	$	111,222


	At December 31, 2008
	Loan Type
			Commercial						Home		Credit		Res
	Commercial		R/E				Installment		Equity		Card		Mortgage
Allowance for Loan Losses Components:	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	8,438	$	45,220	$	—	$	—	$	—	$	—	$	—	$	53,658
Allowance		48		3,924		—		—		—		—		—		3,972
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		37,316		9,030		5,976										52,322
Grade 1 allowance		42		18		8										68
Grade 2 loan balance		199,166		138,399		3,046										340,611
Grade 2 allowance		664		606		12										1,282
Grade 3 loan balance		559,165		566,369		27,980										1,153,514
Grade 3 allowance		1,765		3,961		108										5,834
Grade 4 loan balance		992,118		1,583,721		28,333										2,604,172
Grade 4 allowance		8,920		27,145		287										36,352
Grade 5 (Special Mention) loan balance		33,940		41,215		190										75,345
Grade 5 allowance		1,110		2,495		6										3,611
Grade 6 (Substandard) loan balance		66,134		72,387		2,069										140,590
Grade 6 allowance		6,074		9,009		194										15,277
Grade 7 (Doubtful) loan balance		33		79		—										112
Grade 7 allowance		4		6		—										10
Consumer loans based on payment status:
Current loan balances								1,548,639		730,503		143,934		515,093		2,938,169
Current loans allowance								12,762		4,823		3,465		2,736		23,786
30 days past due loan balance								16,912		1,704		2,149		13,264		34,029
30 days past due allowance								2,078		494		866		473		3,911
60 days past due loan balance								5,728		1,087		1,550		5,339		13,704
60 days past due allowance								2,122		748		978		643		4,491
90+ days past due loan balance								3,308		538		2,112		13,429		19,387
90+ days past due allowance								2,097		602		1,804		660		5,163

Total loans	$	1,896,310	$	2,456,420	$	67,594	$	1,574,587	$	733,832	$	149,745	$	547,125	$	7,425,613

Total Allowance for Loan Losses	$	18,627	$	47,164	$	615	$	19,059	$	6,667	$	7,113	$	4,512	$	103,757


	At June 30, 2008
	Loan Type
			Commercial						Home		Credit		Res
	Commercial		R/E				Installment		Equity		Card		Mortgage
Allowance for Loan Losses Components:	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
(In thousands)
Individually Reviewed for Impairment Component:
Loan balance	$	1,415	$	65,993	$	—	$	—	$	—	$	—	$	—	$	67,408
Allowance		801		6,290		—		—		—		—		—		7,091
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		17,586		1,071		5,175										23,832
Grade 1 allowance		27		—		10										40
Grade 2 loan balance		192,852		147,506		4,024										344,382
Grade 2 allowance		828		734		20										1,582
Grade 3 loan balance		596,583		484,890		32,443										1,113,916
Grade 3 allowance		2,360		3,256		152										5,768
Grade 4 loan balance		963,276		1,475,121		26,716										2,465,113
Grade 4 allowance		11,361		22,136		377										33,874
Grade 5 (Special Mention) loan balance		41,747		80,492		1,361										123,600
Grade 5 allowance		1,912		3,850		62										5,824
Grade 6 (Substandard) loan balance		21,203		46,366		1,535										69,104
Grade 6 allowance		2,541		5,617		182										8,340
Grade 7 (Doubtful) loan balance		59		113		—										172
Grade 7 allowance		11		17		—										28
Consumer loans based on payment status:
Current loan balances								1,603,339		694,332		142,110		544,596		2,984,377
Current loans allowance								13,424		4,446		3,565		4,055		25,490
30 days past due loan balance								10,787		2,380		1,595		11,412		26,174
30 days past due allowance								1,270		650		650		575		3,145
60 days past due loan balance								3,377		647		1,208		3,488		8,720
60 days past due allowance								1,211		413		785		587		2,996
90+ days past due loan balance								1,880		370		1,814		10,020		14,084
90+ days past due allowance								1,172		364		1,624		901		4,061

Total loans	$	1,834,721	$	2,301,552	$	71,254	$	1,619,383	$	697,729	$	146,727	$	569,516	$	7,240,882

Total Allowance for Loan Losses	$	19,841	$	41,903	$	803	$	17,077	$	5,873	$	6,624	$	6,118	$	98,239

Total charge-offs were $24.7 million for the quarter ended June 30, 2009, up $9.9 million, or 66.73%, from the year ago quarter. Criticized commercial assets (“individually impaired,” “special mention,” “substandard” and “doubtful”) increased $56.6 million and accounted for 7.51% of total commercial loans for the 2009 second quarter compared with criticized commercial asset levels of 6.19% at June 30, 2008 reflecting the continued stress in the national housing markets and specifically the residential construction portfolio. The homebuilder portfolio is examined name-by-name, account-by-account, revalued and rerated frequently. A new appraisal is ordered if the projected velocity and absorption are not being met from the most recent appraisal. Generally, the appraisals are less than 180 days old unless velocity and absorption values are affirmed with current performance. The carrying values are further discounted to reflect current liquidation value. This rigorous valuation and resulting rating adds some volatility to commercial construction asset class but give greater transparency.

Commercial charge-offs were up $6.4 million over the prior year second quarter driven by one commercial credit. Loans past due 90 days or non accruing interest were up $0.3 million or 1.30% from the linked quarter ended March 31, 2009 and up $8.2 million or 58.56% from the year ago quarter ended June 30, 2008 reflecting the current deteriorating economic conditions in the retail portfolio.

Loans

Total loans outstanding at June 30, 2009 were $7.1 billion compared to $7.4 billion at December 31, 2008 and $7.2 billion at June 30, 2008. The decline in the loan portfolio of $280.5 million, or 3.78% from December 31, 2008 reflects the current economic cycle in which business owners have reduced inventory and receivables and are focused on paying down existing debt.


	As of		As of		As of
	June 30,		December 31,		June 30,
(Dollars in thousands)	2009		2008		2008

Commercial loans	$	4,181,857	$	$4,352,730	$	4,136,273
Mortgage loans		503,890		547,125		569,516
Installment loans		1,497,211		1,574,587		1,619,383
Home equity loans		754,110		733,832		697,729
Credit card loans		148,104		149,745		146,727
Leases		59,974		67,594		71,254

Total loans	$	7,145,146	$	7,425,613	$	7,240,882

Expected cash flow and interest rate information for commercial loans is presented in the following table:


	As of
	June 30, 2009
	(Dollars in thousands)
Due in one year or less	$	1,868,999
Due after one year but within five years		1,923,387
Due after five years		389,471

Totals	$	4,181,857


Due after one year with a predetermined fixed interest rate	$	894,759
Due after one year with a floating interest rate		1,418,099

Totals	$	2,312,858

The following table summarizes the Corporation’s nonperforming assets:


	June 30,			December 31,			June 30,
	2009			2008			2008
				(Dollars in thousands)
Nonperforming commercial loans	$	48,563		$	40,195		$	26,702
Other nonaccrual loans:		14,929			12,007			9,884

Total nonperforming loans		63,492			52,202			36,586
Other real estate (“ORE”)		9,859			5,324			5,053

Total nonperforming assets	$	73,351		$	57,526		$	41,639


Loans past due 90 day or more accruing interest	$	22,129		$	23,928		$	10,654

Total nonperforming assets as a percentage of total loans and ORE		1.03	%		0.77	%		0.57	%

The allowance for credit losses covers nonperforming loans by 184.71% at June 30, 2009 compared to 211.38% at December 31, 2008 and 288.50% at June 30, 2008. See Note 1 (Summary of Significant Accounting Policies) of the 2008 Form 10-K for a summary of the Corporation’s nonaccrual and charge-off policies.

The following table is a nonaccrual commercial loan flow analysis:

��
							Quarter Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
(In thousands)	2009			2009			2008			2008			2008

Nonaccrual commercial loans beginning of period	$	54,070		$	40,195		$	29,245		$	26,702		$	19,777

Credit Actions:
New		7,259			22,912			18,217			7,504			15,710
Loan and lease losses		(5,951	)		(1,950	)		(1,146	)		(2,440	)		(944	)
Charged down		(4,182	)		(2,603	)		(4,458	)		(1,135	)		(2,794	)
Return to accruing status		(660	)		(3,333	)		(123	)		(409	)		(3,301	)
Payments		(1,973	)		(1,151	)		(1,540	)		(977	)		(1,746	)
Sales		—			—			—			—			—

Nonaccrual commercial loans end of period	$	48,563		$	54,070		$	40,195		$	29,245		$	26,702

Nonaccrual commercial loans have decreased $5.5 million from the first quarter of 2009 and increased $21.9 million from the second quarter of 2008.

Deposits, Securities Sold Under Agreements to Repurchase and Wholesale Borrowings

The following schedule illustrates the change in composition of the average balances of deposits and average rates paid for the noted periods.


	Quarter Ended					Year Ended					Quarter Ended
	June 30, 2009					December 31, 2008					June 30, 2008
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
						(Dollars in thousands)

Non-interest DDA	$	1,891,792		—		$	1,530,021		—		$	1,518,841		—
Interest-bearing DDA		671,235		0.10	%		687,160		0.37	%		709,922		0.33	%
Savings and money market accounts		2,810,155		0.78	%		2,398,778		1.24	%		2,366,296		1.10	%
CDs and other time deposits		2,241,644		2.74	%		2,801,623		3.78	%		2,744,447		3.90	%

Total customer deposits		7,614,826		1.10	%		7,417,582		1.86	%		7,339,506		1.85	%

Securities sold under agreements to repurchase		945,178		0.51	%		1,343,441		2.37	%		1,312,436		2.55	%
Wholesale borrowings		1,019,786		2.71	%		663,109		4.16	%		711,132		3.53	%

Total funds	$	9,579,790				$	9,424,132				$	9,363,074

Total demand deposits increased as a percent of total average deposits from 33.66% in the 2009 second quarter compared to 30.37% in the second quarter 2008. Savings accounts, including money market products, made up 36.90% of average deposits in the 2009 second quarter compared to 32.24% in the second quarter 2008. Higher cost CDs made up 29.44% of average deposits in the second quarter 2009 and compared to 37.39% in the second quarter 2008.

The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was down 212 basis points compared to one year ago, or 0.30% for the quarter ended June 30, 2009 due to the drop in interest rates and the disruption in the capital markets.

The following table summarizes scheduled maturities of CDs of $100 thousand or more (“Jumbo CDs”) that were outstanding as of June 30, 2009:


Maturing in:	Amount
	(In thousands)

Under 3 months	$	209,550
3 to 6 months		183,932
6 to 12 months		85,455
Over 1 year through 3 years		79,618
Over 3 years		8,514

	$	567,069

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.

Shareholder’s Equity

Shareholders’ equity at June 30, 2009 totaled $1.0 billion compared to $937.8 million at December 31, 2008 and $924.4 million at June 30, 2008. The common dividend per share paid in the second quarter 2009 was $0.16 as well as a $0.13 per share dividend of common stock.

During the quarter ended June 30, 2009, the Corporation exited from the CPP under TARP. See Note 6 (Earnings Per Share) for further detail.

Capital Availability

During the second quarter of 2009, the Company entered into a Distribution Agency Agreement with Credit Suisse Securities (USA) LLC pursuant to which the Company, from time to time, offered and sold shares of the Corporation’s common stock. Sales of the Common Shares were made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, in block transaction or as otherwise agreed with Credit Suisse. During this time, 3.3 million shares were sold at an average market value net of broker’s fees of $18.36 per share.

Capital Adequacy

Capital adequacy is an important indicator of financial stability and performance. The Corporation maintained a strong capital position as tangible common equity to assets was 8.36% at June 30, 2009, compared to 7.27% at December 31, 2008, and 7.52% at June 30, 2008.

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 I 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. As of June 30, 2009, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

The following table reflects the various measures of capital:


	June 30,				December 31,				June 30,
	2009				2008				2008
					(Dollars in thousands)

Consolidated
Total equity	$	1,022,647	9.56	%	$	937,843	8.45	%	$	924,429	8.75	%
Common equity		1,022,647	9.56	%		937,843	8.45	%		924,429	8.75	%
Tangible common equity (a)		882,173	8.36	%		797,195	7.27	%		783,607	7.52	%
Tier 1 capital (b)		936,038	11.38	%		870,870	10.19	%		854,504	10.33	%
Total risk-based capital (c)		1,039,043	12.63	%		1,007,679	11.80	%		987,931	11.94	%
Leverage (d)		936,038	8.74	%		870,870	8.19	%		854,504	8.23	%

Bank Only
Total equity	$	804,009	7.52	%	$	744,535	6.72	%	$	767,734	7.28	%
Common equity		804,009	7.52	%		744,535	6.72	%		767,734	7.28	%
Tangible common equity (a)		663,535	6.29	%		603,887	5.52	%		626,912	6.02	%
Tier 1 capital (b)		802,305	9.77	%		762,634	8.95	%		782,982	9.49	%
Total risk-based capital (c)		901,437	10.97	%		895,703	10.51	%		912,766	11.06	%
Leverage (d)		802,305	7.50	%		762,634	7.18	%		782,982	7.55	%


(a)		Common equity less all intangibles; computed as a ratio to total assets less intangible assets.

(b)		Shareholders’ equity less goodwill; computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.

(c)		Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.

(d)		Tier 1 capital computed as a ratio to the latest quarter’s average assets less goodwill.

Participation in the CPP under EESA

In response to the ongoing financial crisis affecting the banking system and financial markets, the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008, which established Troubled Assets Relief Program (“TARP”). As part of

TARP, the Treasury established the Capital Purchase Program (“CPP”) to provide up to $700 billion of funding to eligible financial institutions through the purchase of mortgages, mortgage- backed securities, capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On January 9, 2009, the Corporation completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the CPP. FirstMerit issued and sold to the Treasury for an aggregate purchase price of $125.0 million in cash (1) 125,000 shares of FirstMerit’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share, and (2) a warrant to purchase 952,260 FirstMerit common shares, each without par value, at an exercise price of $19.69 per share. On April 22, 2009, the Corporation repurchased all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009 the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

Market Risk

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 Asset and Liability Committee (“ALCO”) oversees market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to these policies, responsibility for measuring and the management of interest rate risk resides in the corporate treasury function.

The interest rate risk position can be influenced by a number of factors other than changes in market interest rates, including economic conditions, the competitive environment within the Corporation’s markets, consumer preferences for specific loan and deposit products, and the level of interest rate exposure arising from reprice risk, option risk, and basis risk. Each of these types of risks is defined in the discussion of market risk management of the 2008 Form 10-K.

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

Net interest income simulation analysis.Earnings simulation involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Presented below is the Corporation’s interest rate risk profile as of June 30, 2009 and 2008:


	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in Net Interest Income:
	- 100 basis			+ 100 basis			+ 200 basis			+ 300 basis
	points			points			points			points

June 30, 2009		*			1.32	%		2.09	%		2.57	%
June 30, 2008		(0.10	%)		0.34	%		0.54	%		0.65	%


*		Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

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 economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. EVE involves discounting present values of all cash flows of on balance sheet and off balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s economic value of equity. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet. Presented below is the Corporation’s EVE profile as of June 30, 2009 and 2008:


	Immediate Change in Rates and Resulting Percentage
	Increase/(Decrease) in EVE:
	- 100 basis			+ 100 basis			+ 200 basis			+ 300 basis
	points			points			points			points

June 30, 2009		*			1.27	%		0.08	%		0.18	%
June 30, 2008		(3.14	%)		(0.19	%)		(1.52	%)		(3.43	%)


*		Modeling for the decrease in 100 basis points scenario has been suspended due to the current rate environment.

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) to the unaudited consolidated financial statements included in this report.

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 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. In addition, the overall management of the Corporation’s liquidity position is integrated into retail deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch system, along with unencumbered, or unpledged, investment securities. The Corporation also has available unused wholesale sources of liquidity, including advances from the Federal Home Loan Bank of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is also provided by unencumbered, or unpledged, investment securities that totaled $870 million at June 30, 2009.

The Corporation’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct 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 indirect 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.

Certain credit markets that the Corporation participates in (from time to time), as sources of funding have been significantly disrupted and highly volatile since July 2007. As a means of maintaining adequate liquidity, the Corporation, like many other financial institutions, has relied more heavily on the liquidity and stability present in the short-term and secured credit markets since access to unsecured term debt has been restricted. Short-term funding has been available and cost effective. However, if further market disruption were to also reduce the cost effectiveness and availability of these funds for a prolonged period of time, management may need to secure other funding alternatives.

The Corporation maintains a liquidity contingency plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

Funding Trends for the Quarter-During the three months ended June 30, 2009, lower cost core deposits increased by $0.1 million from the previous quarter. In aggregate total, deposits decreased $0.2 million driven by a decline in higher cost CD balances. Securities sold under agreements to repurchase increased $0.3 million from March 31, 2009. Wholesale borrowings decreased $0.2 million from March 31, 2009. The Corporation’s loan to deposit ratio increased to 95.89% at June 30, 2009 from 95.74% at March 31, 2009.

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; as well as pay dividends to shareholders.

During the quarter ended June 30, 2009, FirstMerit Bank paid $13.5 million in dividends to FirstMerit Corporation. As of June 30, 2009, FirstMerit Bank had an additional $47.7 million available to pay dividends without regulatory approval.

Recent Market and Regulatory Developments.Recent market conditions have made it difficult or uneconomical to access the capital markets. As a result, the United States Congress, the Treasury, and the Federal Deposit Insurance Corporation (“FDIC”) have announced various programs designed to enhance market liquidity and bank capital.

In response to the ongoing financial crisis affecting the banking system and financial markets, EESA was signed into law on October 3, 2008 and established TARP. As part of

TARP, the Treasury established the CPP to provide up to $700 billion of funding to eligible financial institutions through the purchase of mortgages, mortgage-backed securities, capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On January 9, 2009, FirstMerit completed the sale to the Treasury of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the CPP. On April 22, 2009, the Corporation completed the repurchase of all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A for $126.2 million which included all accrued and unpaid dividends as well as the unamortized discount on the preferred stock. On May 27, 2009 the Corporation completed the repurchase of the warrant held by the Treasury. The Corporation paid $5.0 million to the Treasury to repurchase the warrant.

Separately, the FDIC announced its temporary liquidity guarantee program (“TLPG”) pursuant to which the FDIC will guarantee the payment of certain newly-issued senior unsecured debt of insured depository institutions (“Debt Guarantee”) and funds held at FDIC-insured depository institutions in noninterest-bearing transaction accounts in excess of the current standard maximum deposit insurance amount of $250,000 (“Transaction Account Guarantee”). Both guarantees were provided to eligible institutions, including the Corporation, at no cost through December 5, 2008. Participation in the TLPG subsequent to December 5, 2008 is optional.

The Corporation elected to participate in the TLPG subsequent to December 5, 2008. The Transaction Account Guarantee is effective for the Corporation through January 1, 2010. Under the Debt Guarantee, qualifying senior unsecured debt newly issued by the Corporation during the period from October 14, 2008 to June 30, 2009, inclusive, is covered by the FDIC guarantee. The maximum amount of debt that eligible institutions can issue under the guarantee is 125% of the par value of the entity’s qualifying senior unsecured debt, excluding debt to affiliates that was outstanding as of September 30, 2008, and scheduled to mature by June 30, 2009. The FDIC will provide guarantee coverage until the earlier of the eligible debt’s maturity or June 30, 2012.

Participants in the Debt Guarantee Program are assessed an annualized fee of 75 basis points for its participation, and an annualized fee of 10 basis points for its participation in the Transaction Account Guarantee. To the extent that these initial assessments are insufficient to cover the expense or losses arising under TLPG, the FDIC is required to impose an emergency special assessment on all FDIC-insured depository institutions as prescribed by the Federal Deposit Insurance Act. In May 2009, the FDIC announced it was imposing an emergency special assessment of five basis points on average assets of all FDIC-insured depository institutions as of June 30, 2009.

The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package, was signed into law on February 17, 2009, by President Obama. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, until the institution has repaid the Treasury, which is permitted under the revised ARRA rules without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry in which it operates. All accounting policies are important, and all policies described in Note 1 (Summary of Significant Accounting Policies) of the 2008 Form 10-K provide a greater understanding of how the Corporation’s financial performance is recorded and reported.

Some accounting policies are more likely than others to have a significant effect on the Corporation’s financial results and to expose those results to potentially greater volatility. The policies require Management to exercise judgment and make certain assumptions and estimates that affect amounts reported in the financial statements. These assumptions and estimates are based on information available as of the date of the financial statements.

Management relies heavily on the use of judgment, assumptions and estimates to make a number of core decisions, including accounting for the allowance for loan losses, income taxes, derivative instruments and hedging activities, and assets and liabilities that involve valuation methodologies. A brief discussion of each of these areas appears within Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2008 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, IRLCs, and TBA Securities is included in Note 8 (Derivatives and Hedging Activities) to the Corporation’s consolidated financial statements included in this report and in Note 17 to the 2008 Form 10-K. There have been no significant changes since December 31, 2008.

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 detained 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 2008 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; technology; demand for the Corporation’s product offerings; new products and services in the industries in which the Corporation operates; and critical accounting estimates. 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 Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), Financial Industry Regulatory Authority (FINRA), and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation; and the Corporation’s success in executing its business plans and strategies 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.

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.

During the period covered by the report, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Corporation is 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 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.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in 2008 Form 10-K.

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

(a)		Not applicable.

(b)		Not applicable.

(a)

The following table provides information with respect to purchases the Corporation made of its common shares during the second quarter of the 2009 fiscal year:


					Total Number of		Maximum
					Shares Purchased		Number of Shares
					as Part of Publicly		that May Yet Be
	Total Number of		Average Price		Announced Plans		Purchased Under
	Shares Purchased		Paid per Share		or Programs (1)		Plans or Programs

Balance as of March 31, 2009								396,272

April 1, 2009 - April 30, 2009		32,239	$	20.09		—		396,272
May 1, 2009 - May 31, 2009		500		23.46		—		396,272
June 1, 2009 - June 30, 2009		28,198		17.77		—		396,272


Balance as of June 30, 2009		60,937	$	19.04		—		396,272


(1)		On January 19, 2006, the Board of Directors authorized the repurchase of up to 3 million shares (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 (the “Prior Repurchase Plan”). The Corporation had purchased all of the shares it was authorized to acquire under the Prior Repurchase Plan.

(2)		60,937 of these common shares were either: (1) delivered by the option holder with respect to the exercise of stock options; (2) in the case of restricted shares of common stock, shares were withheld to pay income taxes or other tax liabilities with respect to the vesting of restricted shares; or (3) shares were returned upon the resignation of the restricted shareholder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)

The Corporation held its Annual Meeting of Shareholders on April 15, 2009, for which the Board of Directors solicited proxies.

(b)

Four Class II Directors and four Class III Directors were elected at the Annual Meeting for terms expiring at the 2010 Annual Meeting of Shareholders, with the following voting results:


				Authority
	For		Against	Withheld
Karen S. Belden		69,388,538	*		1,567,507
R. Cary Blair		57,486,383	*		13,469,662
John C. Blickle		69,569,291	*		1,386,753
Robert W. Briggs		69,633,693	*		1,322,351
Gina D. France		69,950,761	*		1,005,284
Paul G. Greig		69,472,912	*		1,483,132
Terry L. Haines		57,762,526	*		13,193,518
Clifford J. Isroff		57,579,904	*		13,376,140


*		Proxies provide that shareholders may either cast a vote for, or abstain from voting for, directors.

Continuing Class I Directors serving until the 2010 Annual Meeting of Shareholders are Steven H. Baer, Richard Colella, J. Michael Hochschwender, Philip A. Lloyd II and Richard N. Seaman.

(1) Ratification of the selection of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2009:


Votes For	Votes Against	Abstentions
69,768,848	956,349	230,849

(2) Approval of a non-binding advisory proposal on FirstMerits’ executive compensation:


Votes For	Votes Against	Abstentions
46,854,144	22,919,387	1,182,517

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits


Exhibit
Number
3.1		Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended (incorporated by reference from Exhibit 3.1 to the Annual Report on Form 10-K filed by the Registrant on February 18, 2009).

3.2		Second Amended and Restated Code of Regulations of FirstMerit Corporation, as amended (incorporated by reference from Exhibit 3.2 to the Annual Report on Form 10-K filed by the Registrant on February 18, 2009).

10.1		Repurchase Letter Agreement, dated April 22, 2009, between FirstMerit Corporation and the United States Department of the Treasury (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on April 22, 2009).

10.2		Distribution Agency Agreement, dated May 6, 2009, between FirstMerit Corporation and Credit Suisse Securities (USA) LLC (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed by the Registrant on May 6, 2009).

10.3		Warrant Repurchase Letter Agreement, dated May 27, 2009, between FirstMerit Corporation and the United States Department of the Treasury (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 27, 2009).

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, Executive Vice President and Chief Financial Officer of FirstMerit Corporation.

32.1		Rule 13a-14(b)/Section 906 Certifications of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.

32.2		Rule 13a-14(b)/Section 906 Certifications of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit Corporation.

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, Executive Vice President
		and Chief Financial Officer (duly authorized officer of registrant and principal financial officer)

July 30, 2009

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FirstMerit (FMER) Inactive 10-Q2009 Q2 Quarterly report

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