FirstMerit (FMER) 10-Q 2010 Q1 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 March 31, 2010

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	(IRS Employer Identification
incorporation or organization)	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. YESþNOo

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

Large accelerated filer þ	Accelerated filer o	Non-accelerated filero	Smaller reporting companyo
		(Do not check if smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ

     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). YesoNoo

     As of May 6, 2010, 91,184,700 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-3.1
EX-3.2
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, 2009, which is derived from the	March 31,			December 31,			March 31,
audited financial statements)	2010			2009			2009
ASSETS
Cash and due from banks	$	721,938		$	161,033		$	179,397
Investment securities
Held-to-maturity		67,256			50,686			30,588
Available-for-sale		3,102,407			2,565,943			2,576,637
Other investments		131,376			128,209			128,007
Loans held for sale		16,009			16,828			22,408
Noncovered Loans:
Commercial loans		4,389,859			4,066,522			4,344,915
Mortgage loans		447,575			463,416			524,909
Installment loans		1,382,522			1,425,373			1,533,885
Home equity loans		766,073			753,112			741,073
Credit card loans		145,029			153,525			141,597
Leases		59,464			61,541			64,384
Total noncovered loans		7,190,522			6,923,489			7,350,763
Less: allowance for loan losses		(117,806	)		(115,092	)		(106,257	)
Net noncovered loans		7,072,716			6,808,397			7,244,506
Covered loans (includes loss share receivable of $108 million)		277,315			—			—
Net loans		7,350,031			6,808,397			7,244,506
Premises and equipment, net		164,408			125,205			130,920
Goodwill		187,945			139,598			139,245
Intangible assets		5,659			1,158			1,316
Other real estate covered by FDIC loss share		11,415			—			—
Accrued interest receivable and other assets		565,004			542,845			519,152
Total assets	$	12,323,448		$	10,539,902		$	10,972,176
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	2,217,714		$	2,069,921			1,848,200
Demand-interest bearing		686,503			677,448			669,789
Savings and money market accounts		4,103,657			3,408,109			2,763,058
Certificates and other time deposits		2,362,135			1,360,318			2,397,166
Total deposits		9,370,009			7,515,796			7,678,213
Federal funds purchased and securities sold under agreements to repurchase		896,330			996,345			804,525
Wholesale borrowings		677,715			740,105			1,134,152
Accrued taxes, expenses, and other liabilities		224,041			222,029			271,017
Total liabilities		11,168,095			9,474,275			9,887,907
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		—			—			120,622
Common stock, without par value: authorized 300,000,000 shares; issued 97,521,571, 93,633,871 and 92,026,350 at March 31, 2010, December 31, 2009 and March 31, 2009, respectively		127,937			127,937			127,937
Common stock warrant		—			—			4,582
Capital surplus		171,330			88,573			84,876
Accumulated other comprehensive loss		(20,983	)		(25,459	)		(38,634	)
Retained earnings		1,047,827			1,043,625			1,057,681
Treasury stock, at cost, 6,711,936, 6,629,995 and 10,609,284 shares at March 31, 2010, December 31, 2009 and March 31, 2009, respectively		(170,758	)		(169,049	)		(272,795	)
Total shareholders’ equity		1,155,353			1,065,627			1,084,269
Total liabilities and shareholders’ equity	$	12,323,448		$	10,539,902		$	10,972,176

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

2

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Quarters ended
(Unaudited)	March 31,
(In thousands except per share data)	2010		2009
Interest income:
Interest and fees on loans, including held for sale	$	83,150	$	87,799
Investment securities
Taxable		24,870		28,295
Tax-exempt		3,339		3,262
Total investment securities interest		28,209		31,557
Other earning assets		495		—
Total interest income		111,854		119,356
Interest expense:
Interest on deposits:
Demand-interest bearing		152		155
Savings and money market accounts		7,601		5,377
Certificates and other time deposits		6,406		18,588
Interest on securities sold under agreements to repurchase		1,127		999
Interest on wholesale borrowings		6,174		7,343
Total interest expense		21,460		32,462
Net interest income		90,394		86,894
Provision for loan losses		25,493		18,065
Net interest income after provision for loan losses		64,901		68,829
Other income:
Trust department income		5,281		4,790
Service charges on deposits		15,366		14,163
Credit card fees		11,558		11,084
ATM and other service fees		2,509		2,606
Bank owned life insurance income		5,652		3,015
Investment services and insurance		1,928		2,918
Loan sales and servicing income		3,237		2,335
Gain on acquistion		5,090		—
Gain on post medical retirement curtailment		—		9,543
Other operating income		3,328		4,734
Total other income		53,949		55,188
Other expenses:
Salaries, wages, pension and employee benefits		48,156		42,682
Net occupancy expense		7,140		6,871
Equipment expense		6,050		5,797
Stationery, supplies and postage		2,693		2,275
Bankcard, loan processing and other costs		7,818		7,842
Professional services		5,237		3,480
Amortization of intangibles		234		87
FDIC expense		3,765		2,556
Other operating expense		12,920		11,613
Total other expenses		94,013		83,203
Income before federal income tax expense		24,837		40,814
Federal income tax expense		6,816		11,380
Net income	$	18,021	$	29,434
Other comprehensive income, net of taxes
Unrealized securities’ holding gain, net of taxes	$	4,476	$	15,817
Unrealized hedging loss, net of taxes		—		(94	)
Minimum pension liability adjustment, net of taxes		—		(277	)
Total other comprehensive gain, net of taxes		4,476		15,446
Comprehensive income	$	22,497	$	44,880
Net income applicable to common shares	$	18,021	$	27,563
Net income used in diluted EPS calculation	$	18,021	$	27,563
Weighted average number of common shares outstanding — basic*		87,771		82,514
Weighted average number of common shares outstanding — diluted*		87,777		82,523
Basic earnings per share *	$	0.21	$	0.33
Diluted earnings per share *	$	0.21	$	0.33
Dividend per share	$	0.16	$	0.29

* Average outstanding shares and per share data as of March 31, 2009 are restated to reflect the effect of stock dividends declared April 28, 2009 and August 20, 2009.

The accompaning notes are an integral part of the consoldiated financial statements.

3

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

										Accumulated
						Common					Other									Total
(Unaudited)	Preferred		Common		Stock		Capital			Comprehensive			Retained			Treasury			Shareholders’
(In thousands)	Stock		Stock		Warrant		Surplus			Income			Earnings			Stock			Equity
Balance at December 31, 2008	$	—	$	127,937	$	—	$	94,802		$	(54,080	)	$	1,053,435		$	(284,251	)	$	937,843
Net income		—		—		—		—			—			67,692			—			67,692
Cash dividends — preferred stock		—		—		—		—			—			(1,789	)		—			(1,789	)
Cash dividends — common stock ($0.61 per share)		—		—		—		—			—			(50,286	)		—			(50,286	)
Stock dividend		—		—		—		5,765			—			(21,718	)		15,953			—
Options exercised (2,400 shares)		—		—		—		(18	)		—			—			58			40
Nonvested (restricted) shares granted (536,058 shares)		—		—		—		(13,154	)		—			—			13,151			(3	)
Treasury shares purchased (118,736 shares)		—		—		—		500			—			—			(2,197	)		(1,697	)
Deferred compensation trust (29,597 shares)		—		—		—		(32	)		—			—			32			—
Share-based compensation		—		—		—		6,270			—			—			—			6,270
Issuance of common stock (3,267,751 shares)		—		—		—		(24,561	)		—			—			84,517			59,956
Issuance of Fixed-Rate Cumulative Perpetual Preferred Stock		120,622		—		4,582		—			—			(204	)		—			125,000
Net unrealized gains on investment securities, net of taxes		—		—		—		—			47,568			—			—			47,568
Unrealized hedging gain, net of taxes		—		—		—		—			(94	)		—			—			(94	)
Minimum pension liability adjustment, net of taxes		—		—		—		—			(831	)		—			—			(831	)
Balance at March 31, 2009	$	120,622	$	127,937	$	4,582	$	69,572		$	(7,437	)	$	1,047,130		$	(172,737	)	$	1,189,669
Balance at December 31, 2009	$	—	$	127,937	$	—	$	88,573		$	(25,459	)	$	1,043,625		$	(169,049	)	$	1,065,627
Net income		—		—		—		—			—			18,021			—			18,021
Cash dividends — common stock ($0.16 per share)		—		—		—		—			—			(13,819	)		—			(13,819	)
Options exercised (29,161 shares)		—		—		—		(185	)		—			—			677			492
Nonvested (restricted) shares granted (4,375 shares)		—		—		—		(99	)		—			—			99			—
Treasury shares purchased (115,477 shares)		—		—		—		523			—			—			(2,509	)		(1,986	)
Deferred compensation trust (8,828 shares)		—		—		—		(24	)		—			—			24			—
Share-based compensation		—		—		—		2,543			—			—			—			2,543
Issuance of common stock (3,887,700 shares)		—		—		—		79,999			—			—			—			79,999
Net unrealized gains on investment securities, net of taxes		—		—		—		—			4,476			—			—			4,476
Balance at March 31, 2010	$	—	$	127,937	$	—	$	171,330		$	(20,983	)	$	1,047,827		$	(170,758	)	$	1,155,353

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

4

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended
(Unaudited)	March 31,
(In thousands)	2010			2009
Operating Activities
Net income	$	18,021		$	29,434
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		25,493			18,065
Depreciation and amortization		5,277			4,938
Accretion		(3,116	)		(889	)
Amortization of investment securities premiums, net		1,971			851
Post medical retirement curtailment gain		—			(9,543	)
Gain on acquisition		(5,090	)		—
Originations of loans held for sale		(79,771	)		(130,899	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets		81,893			120,558
Gains on sales of loans, net		(1,303	)		(926	)
Net change in assets and liabilities
(Increase) decrease in interest receivable		(1,633	)		2,589
Increase (decrease) in interest payable		1,415			(421	)
Increase in prepaid assets		(719	)		(5,175	)
Increase (decrease) in accounts payable		2,114			(9,616	)
(Decrease) increase in taxes payable		(4,297	)		6,243
Decrease (increase) in other receivables		741			(24	)
(Increase) decrease in other assets		(5,688	)		68
Other increases (decreases)		8,203			(8,394	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		43,511			16,859
Investing Activities
Dispositions of investment securities:
Available-for-sale — sales		12,161			16,552
Available-for-sale — maturities		153,567			158,998
Purchases of available-for-sale investment securities		(714,255	)		(97,745	)
Net (increase) decrease in loans and leases		(12,299	)		55,776
Purchases of premises and equipment		(2,266	)		(2,619	)
Sales of premises and equipment		—			32
Net cash acquired from acquisitions		931,060			—
NET CASH PROVIDED IN INVESTING ACTIVITIES		367,968			130,994
Financing Activities
Net (decrease) increase in demand accounts		(3,671	)		213,840
Net increase in savings and money market accounts		232,767			250,727
Net increase (decrease) in certificates and other time deposits		18,049			(384,033	)
Net decrease in securities sold under agreements to repurchase		(100,015	)		(116,865	)
Net decrease in wholesale borrowings		(62,390	)		(210,043	)
Net proceeds from issuance of preferred stock		—			125,000
Net proceeds from issuance of common stock		79,999			—
Cash dividends — preferred		—			(1,667	)
Cash dividends — common		(13,819	)		(23,317	)
Purchase of treasury shares		(1,986	)		(542	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		492			38
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		149,426			(146,862	)
Increase in cash and cash equivalents		560,905			991
Cash and cash equivalents at beginning of period		161,033			178,406
Cash and cash equivalents at end of period	$	721,938		$	179,397
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest, net of amounts capitalized	$	12,908		$	13,162
Federal income taxes	$	797		$	—

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

5

FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements
March 31, 2010(Unaudited)(Dollars in thousands except per share data)

1. Summary of Significant Accounting Policies

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

     The accounting and reporting policies of FirstMerit Corporation and its subsidiaries (the “Corporation”) conform to generally accepted accounting principles (“GAAP”) in the United States of America and to general practices within the financial services industry. Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) became the single source of authoritative nongovernmental GAAP. Other than resolving certain minor inconsistencies in current GAAP, the ASC is not intended to change GAAP, but rather to make it easier to review and research GAAP applicable to a particular transaction or specific accounting issue. Technical references to GAAP included in these Notes To Consolidated Financial Statements are provided under the new ASC structure.

     The consolidated balance sheet at December 31, 2009 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. No material subsequent events have occurred requiring recognition in the financial statements or disclosure 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 Securities and Exchange Commission (“SEC”). The consolidated financial statements of the Corporation as of March 31, 2010 and 2009 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, 2009.

     Certain reclassifications of prior year’s amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.

     Recently Adopted and Issued Accounting Standards — In June 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) 166, Accounting for Transfers of Financial Assets – An Amendment of FASB Statement No. 140 which has been codified into ASC 860,Transfers and Servicing(“ASC 860”). This guidance removes the concept of a qualifying special-purpose entity from existing GAAP and removes the exception from applying the accounting and reporting standards within ASC 810,Consolidation(“ASC 810”), to

6

qualifying special purpose entities. This guidance also establishes conditions for accounting and reporting of a transfer of a portion of a financial asset, modifies the asset sale/de-recognition criteria, and changes how retained interests are initially measured. This guidance is expected to provide greater transparency about transfers of financial assets and a transferor’s continuing involvement, if any, with the transferred assets. This guidance was effective for the Corporation as of January 1, 2010 and it not have an impact on the Corporation’s financial condition and results of operations.

     In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R) which was codified in ASC 810. This guidance removes the scope exception for qualifying special-purpose entities, contains new criteria for determining the primary beneficiary of a variable interest entity and increases the frequency of required reassessments to determine whether an entity is the primary beneficiary of a variable interest entity. Enhanced disclosures are also required. This guidance was effective for the Corporation as of January 1, 2010 and it did not have an impact on the Corporation’s financial condition and results of operations.

     FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements.ASU 2010-06 amends ASC 820 to require additional disclosures regarding fair value measurements. Specifically, the ASU requires disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers; the reasons for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, the ASU also amends ASC 820 to clarify certain existing disclosure requirements. For example, the ASU clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities. Previously, separate fair value disclosures were required for each major category of assets and liabilities. ASU 2010-06 also clarifies the requirement to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, these disclosures are effective for the quarter ended March 31, 2010 and are incorporated into Note 10 (Fair Value Measurement). The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements becomes effective for the Corporation for the quarter ended March 31, 2011.

2. Business Combinations

     Asset Based Loans

     On December 16, 2009, FirstMerit Bank, N.A. (the “Bank”), acquired $102.0 million in outstanding principal of asset based lending loans (“ABL Loans”), as well as the staff to service and build new business, from First Bank Business Capital, Inc., (“FBBC”) for $93.2 million in cash. FBBC is a wholly owned subsidiary of First Bank, a Missouri state chartered bank. This acquisition expands the Corporation’s market presence and asset based lending business into the Midwest.

     The purchase was accounted for under the acquisition method in accordance with ASC 805,Business Combinations(“ASC 805”). Accordingly, the ABL Loans and a non-compete

7

agreement acquired were recorded at their fair values, $92.7 million and $0.1 million, respectively, on the date of acquisition. The Bank recorded goodwill of $0.4 million relating to the ABL Loans and non-compete agreement it acquired. Additional information can be found in Note 5 (Goodwill and Intangible Assets).

     All ABL Loans acquired were performing as of the acquisition date and as of March 31, 2010. The shortfall between the fair value of the ABL Loans acquired and the outstanding principal balance of these loans at the date of acquisition was a $9.3 million discount and will be accreted into interest income over their estimated useful life in accordance with ASC 310,Receivables.

     First Bank Branches

     On February 19, 2010, the Bank completed the acquisition of certain assets and the assumption of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area. This acquisition was accounted for under the acquisition method in accordance with ASC 805. The Bank recognized $1.4 million of acquisition related costs that were expensed in the current period. These costs are included in the line item entitled professional services in the consolidated income statement. Excluding the purchase accounting adjustments, the acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $301.2 million of loans and $23.0 million in real and personal property associated with the acquired branch locations. The Bank received cash of $832.5 million to assume the net liabilities.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

	Acquired		Fair Value			As Recorded by
	Book Value		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	3,725	$	—		$	3,725
Loans		301,236		(25,624	)		275,612
Premises and equipment		22,992		18,963			41,955
Goodwill		—		48,347			48,347
Core deposit intangible		—		3,154			3,154
Other assets		941		3,115			4,056
Total assets acquired	$	328,894	$	47,955		$	376,849
Liabilities
Deposits	$	1,199,279	$	7,134		$	1,206,413
Accrued expenses and other liabilities		4,192		(1,271	)		2,921
Total liabilities assumed	$	1,203,471	$	5,863		$	1,209,334

     All loans acquired in the First Bank acquisition were performing as of the acquisition date and as of March 31, 2010. The shortfall between the fair value and the outstanding principal balance of these loans at the date of acquisition was a $25.6 million discount and will be accreted into interest income over their estimated useful life in accordance with ASC 310,Receivables.

8

     Additional information regarding the goodwill and core deposit intangible acquired in the First Bank acquisition can be found in Note 5 (Goodwill and Intangible Assets).

     Pro forma financial statement information is not presented because the historical results of the First Bank branches acquired are not meaningful or significant to the Corporation’s results.

     George Washington Savings Bank — FDIC Assisted Acquisition

     On February 19, 2010 the Bank acquired certain assets and assumed substantially all of the deposits and certain liabilities of the failed George Washington Savings Bank (“George Washington”), the subsidiary of George Washington Savings Bancorp, through a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”). The Illinois Department of Financial and Professional Regulations, Division of Banking, declared George Washington closed on February 19, 2010 and appointed the FDIC as receiver.

     The Bank did not acquire the real estate, banking facilities, furniture and equipment of George Washington as part of the purchase and assumption agreement but has the option to purchase these assets at fair market value from the FDIC. This purchase option expires 90 days after acquisition date, but was extended by the FDIC. Fair market values for the real estate, facilities, furniture and equipment will be based on current appraisals and determined at a later date. The Bank is leasing these facilities and equipment from the FDIC until current appraisals are received and a final purchase decision is made.

     The acquisitions of the net assets of George Washington constitute a business combination as defined by ASC 805 and, accordingly were recorded at their estimated fair value on the date of acquisition. The Bank recognized $0.3 million of acquisition related costs that were expensed in the current period. These costs are included in the line item entitled professional services in the consolidated income statement. The assets acquired and liabilities assumed were recorded at their estimated fair values on the date of acquisition. The estimated fair value of assets acquired exceeded the estimated fair value of liabilities assumed, resulting in a bargain purchase gain of $5.1 million. The Bank and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Bank and/or the purchase price. In addition, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

     In connection with the George Washington acquisition, the Bank entered into loss sharing agreements with the FDIC that collectively cover $327.1 million of assets including single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate (collectively referred to as “Covered Assets”). The Bank acquired other George Washington assets that are not covered by the loss sharing agreements with the FDIC including investment securities purchased at fair market value and other tangible assets.

     Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Bank for 80% of losses of up to $172.0 million with respect to the Covered Assets and will reimburse the Bank for 95% of losses that exceed $172.0 million. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Bank 80% reimbursement under the loss sharing agreements, and for 95% of recoveries with respect to losses for which the FDIC paid the Bank 95% reimbursement under the loss sharing agreements.

     The amounts covered by the loss sharing agreements are the pre-acquisition book values of the underlying Covered Assets, the contractual balance of acquired unfunded commitments,

9

and certain future net direct costs incurred in the collection and settlement process. The loss sharing agreements applicable to single family residential mortgage loans provides for FDIC loss sharing and the Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing agreements applicable to commercial loans and securities provides for FDIC loss sharing for five years and the Bank reimbursement to the FDIC for eight years, in each case as described above. The Bank will service the Covered Assets. The expected reimbursements under the loss sharing agreements were recorded on the balance sheet as part of the covered loans acquired at their estimated fair values of $107.6 million on the acquisition date.

     The table below presents a summary of the assets and liabilities purchased in the George Washington acquisition recorded at estimated fair value on the acquisition date. The Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities. The estimated fair value of assets acquired and cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $5.1 million.

	As Recorded		Fair Value			As Recorded by
	by FDIC		Adjustments			FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	57,984	$	—		$	57,984
Investment securities		15,410		—			15,410
Covered Loans
Commercial Loan		256,832		(119,404	)		137,428
Mortgage Loan		24,078		(9,952	)		14,126
Installment Loan		27,218		(7,339	)		19,879
Total covered loans		308,128		(136,695	)		171,433
Loss share receivable		—		107,550			107,550
Total covered loans and loss share receivable							278,983
Core deposit intangible		—		962			962
Covered other real estate		19,021		(7,561	)		11,460
Other assets		3,340		—			3,340
Total assets acquired	$	403,883	$	(35,744	)	$	368,139
Liabilities
Deposits
Noninterest-bearing deposit accounts	$	54,242	$	—		$	54,242
Savings deposits		62,737		—			62,737
Time deposits		278,755		4,921			283,676
Total deposits		395,734		4,921			400,655
Accrued expenses and other liabilities		2,569		—			2,569
Total liabilities assumed	$	398,303	$	4,921		$	403,224

     The operating results of the Corporation for the quarter ended March 31, 2010 include the operating results produced by the George Washington acquisition for the period of February 19, 2010 to March 31, 2010. Due primarily to the Bank acquiring only certain assets and liabilities in the George Washington acquisition, the significant amount of fair value adjustments,

10

the loss sharing agreements with the FDIC, and on-going discussions with the FDIC that may impact which assets and liabilities are ultimately acquired or assumed by the Bank, historical results from George Washington are not meaningful or significant to the Corporation’s results, and thus no 2010 and 2009 pro forma information is presented.

     The Corporation evaluated loans purchased in conjunction with the acquisition of George Washington for impairment in accordance with the provisions of ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality(“ASC 310-30”). Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. In the assessment of credit quality deterioration, Management made numerous assumptions, interpretations and judgments, using internal and third-party credit quality information to determine whether it is probable that the Corporation will be able to collect all contractually required payments. This is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved.

     The Corporation has elected to recognize the accretion of the purchase discount for purchased nonimpaired loans, excluding those with revolving privileges, based on the acquired loan’s expected cash flows, as described in the ASC 310-30. All purchased impaired and nonimpaired loans, excluding those with revolving privileges, are included in the ASC 310-30 financial statement disclosures to these consolidated financial statements. Revolving loans are excluded from purchased impaired loans accounting.

     The outstanding balance of all purchased loans accounted for in accordance with ASC 310-30 in the George Washington acquisition was $268.8 million and $267.2 million, as of February 19, 2010 and March 31, 2010, respectively. As of the acquisition date, the preliminary estimate of contractually required payments receivable, including interest, for all loans accounted for in accordance with ASC 310-30 acquired in the George Washington transaction was $349.4 million. The cash flows expected to be collected as of the acquisition date for these loans were $173.9 million, including interest. These amounts were determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments. The fair value of these loans as of the acquisition date was $150.9 million. Interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired and nonimpaired loans accounted for in accordance with ASC 310-30.

     Changes in the carrying amount of accretable yield for purchased loans accounted for in accordance with ASC 310-30 were as follows for the quarter ended March 31, 2010 for George Washington.

11

				Carrying
	Accretable			Amount of
	Yield			Loans
Balance at the date of acquisition	$	22,999		$	150,870
Accretion		(1,044	)		1,044
Payments, received, net		—			(3,742	)
Balance at end of period	$	21,955		$	148,172

     As of the acquisition date, the estimate of contractually required payments receivable, including interest, for all loans with revolving privileges acquired in the George Washington transaction was $46.3 million. The cash flows expected to be collected as of the acquisition dates for all loans with revolving privileges acquired in the George Washington transaction were $24.8 million, including interest. The fair value at acquisition date of loans with revolving privileges was $20.5 million. The difference between the fair value of the purchased loans with revolving privileges and the outstanding balance is being accreted to interest income over the remaining period the revolving lines are in effect.

3. Investment Securities

     The following tables provide the amortized cost and fair value for the major categories of held-to-maturity and available-for-sale securities. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

12

	March 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt Securities
U.S. government agency debentures	$	280,333	$	50	$	(743	)	$	279,640
U.S. States and political subdivisions		288,439		4,964		(417	)		292,986
Residential mortgage-backed securities:
U.S. government agencies		1,653,689		56,189		(299	)		1,709,579
Residential collateralized mortgage-backed securities:
U.S. government agencies		752,443		20,103		(228	)		772,318
Non-agency		20		—		(1	)		19
Corporate debt securities		61,397		—		(17,603	)		43,794
Other debt securities		667		—		—			667
Total debt securities		3,036,988		81,306		(19,291	)		3,099,003
Marketable equity securities		3,404		—		—			3,404
Total securities available for sale	$	3,040,392	$	81,306	$	(19,291	)	$	3,102,407
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	67,256	$	—	$	—		$	67,256
Total securities held to maturity	$	67,256	$	—	$	—		$	67,256

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt Securities
U.S. government agency debentures	$	32,029	$	—	$	(132	)	$	31,897
U.S. States and political subdivisions		289,529		4,984		(394	)		294,119
Residential mortgage-backed securities:
U.S. government agencies		1,557,754		55,325		(1,852	)		1,611,227
Residential collateralized mortgage-backed securities:
U.S. government agencies		566,151		16,394		(238	)		582,307
Non-agency		22		—		—			22
Corporate debt securities		61,385		—		(18,957	)		42,428
Other debt securities		679		—		—			679
Total debt securities		2,507,549		76,703		(21,573	)		2,562,679
Marketable equity securities		3,264		—		—			3,264
Total securities available for sale	$	2,510,813	$	76,703	$	(21,573	)	$	2,565,943
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	50,686	$	—	$	—		$	50,686
Total securities held to maturity	$	50,686	$	—	$	—		$	50,686

13

	March 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities available for sale
Debt Securities
U.S. States and political subdivisions	$	288,470	$	3,722	$	(2,416	)	$	289,776
Residential mortgage-backed securities:
U.S. government agencies		1,655,231		44,634		(405	)		1,699,460
Residential collateralized mortgage-backed securities:
U.S. government agencies		522,930		15,106		(164	)		537,872
Non-agency		19,480		—		(404	)		19,076
Corporate debt securities		61,347		—		(34,561	)		26,786
Other debt securities		717		—		—			717
Total debt securities		2,548,175		63,462		(37,950	)		2,573,687
Marketable equity securities		2,950		—		—			2,950
Total securities available for sale	$	2,551,125	$	63,462	$	(37,950	)	$	2,576,637
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	30,588	$	—	$	—		$	30,588
Total securities held to maturity	$	30,588	$	—	$	—		$	30,588

     Other investments on the balance sheet include Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock.

	March 31,		December 31,		March 31,
	2010		2009		2009
FRB stock	$	9,064	$	9,064	$	8,862
FHLB stock		122,312		119,145		119,145
Total other investments	$	131,376	$	128,209	$	128,007

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

     At March 31, 2009, securities totaling $2.0 billion were pledged to secure trust and public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.

Gross Unrealized Losses and Fair Value

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

14

	At March 31, 2010
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			Imparied				Unrealized			Imparied				Unrealized
	Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Debt Securities
U.S. government agency debentures	$	232,571	$	(743	)		15	$	—	$	—			—	$	232,571	$	(743	)
U.S. States and political subdivisions		39,342		(417	)		63		—		—			—		39,342		(417	)
Residential mortgage-backed securities:
U.S. government agencies		131,708		(296	)		9		238		(3	)		1		131,946		(299	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		164,827		(228	)		13		—		—			—		164,827		(228	)
Non-agency		4		(1	)		1		—		—			—		4		(1	)
Corporate debt securities		—		—			—		43,794		(17,603	)		8		43,794		(17,603	)
Total temporarily impaired securities	$	568,452	$	(1,685	)		101	$	44,032	$	(17,606	)		9	$	612,484	$	(19,291	)

	At December 31, 2009
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			Imparied				Unrealized			Imparied				Unrealized
	Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Debt Securities
U.S. government agency debentures	$	31,897	$	(132	)		3	$	—	$	—			—	$	31,897	$	(132	)
U.S. States and political subdivisions		39,059		(394	)		65		—		—			—		39,059		(394	)
Residential mortgage-backed securities:
U.S. government agencies		216,014		(1,849	)		15		271		(3	)		2		216,285		(1,852	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		68,513		(238	)		6		—		—			—		68,513		(238	)
Non-agency		5		—			1		—		—			—		5		—
Corporate debt securities		—		—					42,428		(18,957	)		8		42,428		(18,957	)
Total temporarily impaired securities	$	355,488	$	(2,613	)		90	$	42,699	$	(18,960	)		10	$	398,187	$	(21,573	)

15

	At March 31, 2009
	Less than 12 months							12 months or longer							Total
						Number of							Number of
			Unrealized			Imparied				Unrealized			Imparied				Unrealized
	Fair Value		Losses			Securities		Fair Value		Losses			Securities		Fair Value		Losses
Debt Securities
U.S. States and political subdivisions	$	61,369	$	(1,430	)		104	$	24,427	$	(986	)		39	$	85,796	$	(2,416	)
Residential mortgage-backed securities:
U.S. government agencies		63,876		(401	)		10		347		(4	)		3		64,223		(405	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		10,679		(2	)		1		25,606		(162	)		3		36,285		(164	)
Non-agency		19,052		(404	)		1		—		—			—		19,052		(404	)
Corporate debt securities		—		—			—		26,786		(34,561	)		8		26,786		(34,561	)
Total temporarily impaired securities	$	154,976	$	(2,237	)		116	$	77,166	$	(35,713	)		53	$	232,142	$	(37,950	)

     At least quarterly the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Under the current OTTI accounting model for debt securities, which was amended by the FASB and adopted by the Corporation in the second quarter of 2009, an OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if the Corporation does not expect to sell the security, the Corporation must evaluate the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in other comprehensive income. Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, OTTI is recognized.

     The security-level assessment is performed on each security, regardless of the classification of the security as available for sale or held to maturity. The assessments are based on the nature of the securities, the financial condition of the issuer, the extent and duration of the securities, the extent and duration of the loss and the intent and whether Management intends to sell or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis, which may be maturity. For those securities for which the assessment shows the Corporation will recover the entire cost basis, Management does not intend to sell

16

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 March 31, 2010, gross unrealized losses are concentrated within corporate debt securities which is composed of eight, single issuer, trust preferred securities with stated maturities. Such investments are less than 2% of the fair value of the entire investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the 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 March 31, 2010 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

Realized Gains and Losses

     Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined using the specific identification method. There were no material gains or losses on sales of available-for-sale securities for the quarters ended March 31, 2010 and 2009.

Contractual Maturity of Debt Securities

     The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of March 31, 2010. Estimated lives on mortgage-backed securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

17

													Residential
										Residential			collateralized
										collateralized			mortgage
							Residential			mortgage			obligations -
	U.S.						mortgage backed			obligations - U.S.			non U.S.
	Government			U.S. States			securities - U.S.			Government			Government			Corporate									Weighted
	agency			and political			Government			agency			agency			debt			Other						Average
	debentures			subdivisions			agency obligations			obligations			obligations			securities			securities			Total			Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	40,053		$	11,477		$	22,709		$	22,302		$	—		$	—		$	51		$	96,592			2.62	%
Over one year through five years		227,554			14,157			1,686,870			750,017			20			—			203			2,678,821			3.61	%
Over five years through ten years		—			59,542			—			—			—			—			253			59,795			5.97	%
Over ten years		12,026			207,810			—			—			—			43,794			160			263,790			4.86	%
Fair Value	$	279,633		$	292,986		$	1,709,579		$	772,319		$	20		$	43,794		$	667		$	3,098,998			3.82	%
Amortized Cost	$	280,327		$	288,439		$	1,653,689		$	752,443		$	20		$	61,397		$	667		$	3,036,982
Weighted-Average Yield		0.95	%		6.07	%		4.15	%		3.41	%		3.93	%		0.96	%		0.00	%		3.82	%
Weighted-Average Maturity		2.4			10.4			3.3			2.5			4.0			17.6			13.2			4.0
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	19,163		$	—		$	—		$	—		$	—		$	—		$	19,163			5.97	%
Over one year through five years		—			3,417			—			—			—			—			—			3,417			5.97	%
Over five years through ten years		—			9,619			—			—			—			—			—			9,619			5.97	%
Over ten years		—			35,057			—			—			—			—			—			35,057			7.46	%
Fair Value	$	—		$	67,256		$	—		$	—		$	—		$	—		$	—		$	67,256			6.74	%
Amortized Cost	$	—		$	67,256		$	—		$	—		$	—		$	—		$	—		$	67,256
Weighted-Average Yield					6.74	%																	6.74	%
Weighted-Average Maturity					9.6																		9.6

4. Allowance for loan losses

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

     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, 2009 (the “2009 Form 10-K”) more fully describe the components of the allowance for loan loss model.

     There was no further credit detioriation requiring an allowance for loan losses related to the $523.3 million of acquired loans at March 31, 2010.

     The activity within the allowance for loan loss for the quarters ended March 31, 2010 and 2009 and the year ended December 31, 2009, is shown in the following table:

18

	Three months ended				Year ended
	March 31,				December 31,
	2010		2009		2009
Allowance for loan losses-beginning of period	$	115,092	$	103,757	$	103,757
Loans charged off:
Commercial		8,895		4,554		39,685
Mortgage		1,646		923		4,960
Installment		8,805		8,438		31,622
Home equity		2,070		1,535		7,200
Credit cards		4,168		2,967		13,558
Leases		20		—		97
Overdrafts		591		519		2,591
Total charge-offs		26,195		18,936		99,713
Recoveries:
Commercial		372		224		890
Mortgage		25		26		270
Installment		2,017		2,401		8,329
Home equity		257		85		494
Credit cards		473		387		1,710
Manufactured housing		31		53		171
Leases		9		5		57
Overdrafts		232		190		694
Total recoveries		3,416		3,371		12,615
Net charge-offs		22,779		15,565		87,098
Provision for loan losses		25,493		18,065		98,433
Allowance for loan losses-end of period	$	117,806	$	106,257	$	115,092

5. Goodwill and Intangible Assets

Goodwill

     Changes in the carrying amount of goodwill for the quarter ended March 31, 2010 are as follows:

	Commercial		Retail		Wealth		Total
Balance at January 1, 2010	$	73,827	$	59,038	$	6,733	$	139,598
Goodwill acquired:
First Bank branches		46,414		1,933		—		48,347
Balance at March 31, 2010	$	120,241	$	60,971	$	6,733	$	187,945

     On February 19, 2010 the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois area and recognized $48.3 million of goodwill. $45.3 million of this goodwill is expected to be deductible for tax purposes. Goodwill associated with this acquisition was

19

allocated to the Corporation’s reporting units based on the composition of the assets acquired.

     These acquisitions are more fully described in Note 2 (Business Combinations).

Other Intangible Assets

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

	March 31, 2010
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	9,326	$	(4,380	)	$	4,946
Non-compete covenant		102		(6	)		96
Lease intangible		617		—			617
	$	10,045	$	(4,386	)	$	5,659

	December 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	5,210	$	(4,154	)	$	1,056
Non-compete covenant		102		—			102
	$	5,312	$	(4,154	)	$	1,158

	March 31, 2009
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Core deposit intangibles	$	5,210	$	(3,894	)	$	1,316

     As a result of the ABL Loan acquisition on December 15, 2009, a non-compete asset was recognized at its acquisition date fair value of $0.1 million. This non-compete asset will be amortized on an accelerated basis over its estimated useful life of ten years.

     As a result of the acquisition of the First Bank branches on February 19, 2010, a core deposit intangible asset was recognized at its acquisition date fair value of $3.2 million and a lease intangible asset was recognized at its acquisition date fair value of $0.6 million. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years, and the lease intangible asset will be amortized over the remaining weighted average lease terms.

20

     A core deposit intangible asset with an acquisition date fair value of $1.0 million was recognized as a result of the George Washington acquisition on February 19, 2010. The core deposit intangible asset will be amortized on an accelerated basis over its useful life of ten years.

     These acquisitions are more fully described in Note 2 (Business Combinations).

     Intangible asset amortization expense was $0.2 million and $0.1 for the quarters ended March 31, 2010 and 2009, respectively. Estimated amortization expense for each of the next five years is as follows: 2010 — $1.4 million; 2011 — $1.2 million; 2012 — $1.0 million; 2013 — $0.4 million; and 2014 — $0.4 million.

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:

21

	Quarter ended		Quarter ended
	March 31,		March 31,
	2010		2009
BASIC EPS:
Net income	$	18,021	$	29,434
Less: preferred dividend		—		(1,667	)
Less: accretion of preferred stock discount		—		(204	)
Net income available to common shareholders	$	18,021	$	27,563
Average common shares outstanding (*)		87,771		82,514
Net income per share — basic	$	0.21	$	0.33
DILUTED EPS:
Net income available to common shareholders	$	18,021	$	27,563
Add: interest expense on convertible bonds		—		—
	$	18,021	$	27,563
Avg common shares outstanding (*)		87,771		82,514
Add: Equivalents from stock options and restricted stock		6		9
Add: Equivalents-convertible bonds		—		—
Average common shares and equivalents outstanding (*)		87,777		82,523
Net income per common share — diluted	$	0.21	$	0.33

* Average common shares outstanding have been restated as of March 31, 2009 to reflect stock dividends of 611,582 shares declared April 28, 2009 and 609,560 shares declared on August 20, 2009.

     For the quarters ended March 31, 2010 and 2009 options to purchase 4.6 million and 5.5 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 (“Treasury”) of $125.0 million of newly issued FirstMerit non-voting preferred shares as part of the Treasury’s Troubled Assets Relief Program Capital Purchase Program. The Corporation 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. At March 31, 2009, the warrant was outstanding, but not included in the computation of diluted earning per share because it was antidilutive.

22

     On April 22, 2009, the Corporation completed the repurchase of all 125,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A. On May 27, 2009, the Corporation completed the repurchase of the warrant held by the Treasury.

     On March 3, 2010, the Corporation entered into two distribution agency agreements with Credit Suisse Securities (USA) LLC and RBC Capital Markets Corporation (collectively, the “Sales Agents”), pursuant to which the Corporation may, from time to time, 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 the Sales Agents. During the quarter ended March 31, 2010, the Corporation sold 3.9 million shares with an average value of $20.91 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, business banking (formerly known as small business), public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include commercial term loans, revolving credit arrangements, asset-based lending, leasing, commercial mortgages, real estate construction lending, letters of credit, cash management services and other depository products.

• Retail —The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and servicing, and branch-based small business banking (formerly known as the “micro business” line). Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit cards, debit gift cards, residential mortgage loans, home equity loans and lines of credit, deposit products, fixed and variable annuities and ATM network services. Deposit products include checking, savings, money market accounts and certificates of deposit.

• Wealth —The wealth line of business offers a broad array of asset management, private banking, financial planning, estate settlement and administration, credit and deposit

23

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 2009 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 re-pricing characteristics. As a result, the three primary lines of business are generally insulated from changes in interest rates. Changes in net interest income due to changes in rates are reported in Other by the Treasury Group. Capital has been allocated on an economic risk basis. Loans and lines of credit have been allocated capital based upon their respective credit risk. Asset management holdings in the Wealth segment have been allocated capital based upon their respective market risk related to assets under management. Normal business operating risk has been allocated to each line of business by the level of noninterest expense. Mismatch between asset and liability cash flow as well as interest rate risk for mortgage servicing rights and the origination business franchise value have been allocated capital based upon their respective asset/liability management risk. The provision for loan loss is allocated based upon the actual net charge-offs of each respective line of business, adjusted for loan growth and changes in risk profile. Noninterest income and expenses directly attributable to a line of business are assigned to that line of business. Expenses for centrally provided services are allocated to the business line by various activity based cost formulas.

     The Corporation’s business is conducted solely in the United States of America. The following tables present a summary of financial results for the three-month period ended March 31, 2010 and 2009:

24

										FirstMerit
March 31, 2010	Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income	$	42,649	$	48,074	$	4,704	$	(5,033	)	$	90,394
Provision for loan losses		8,354		9,725		782		6,632			25,493
Other income		10,212		24,764		7,719		11,254			53,949
Other expenses		25,097		51,951		9,352		7,613			94,013
Net income		12,621		7,197		1,488		(3,285	)		18,021
AVERAGES :
Assets	$	4,144,987	$	2,841,569	$	294,010	$	4,076,544		$	11,357,110

										FirstMerit
March 31, 2009	Commercial		Retail		Wealth		Other			Consolidated
OPERATIONS:
Net interest income	$	37,647	$	46,857	$	4,046	$	(1,656	)	$	86,894
Provision for loan losses		4,500		9,761		2,613		1,191			18,065
Other income		10,400		23,976		8,064		12,748			55,188
Other expenses		23,582		50,662		9,335		(376	)		83,203
Net income		12,977		6,767		106		9,584			29,434
AVERAGES :
Assets	$	4,199,534	$	2,900,257	$	313,109	$	3,702,142		$	11,115,042

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 predominant derivative and hedging activities include interest rate swaps and certain mortgage banking activities. Generally, these instruments help the Corporation manage exposure to market risk, and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors, such as interest rates, market-driven rates and prices or other economic factors.

Derivatives Designated in Hedge Relationships

25

     The Corporation uses interest rate swaps 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 (“OCI”) 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.

     As of March 31, 2010, December 31, 2009 and March 31, 2009, the notional values or contractual amounts and fair value of the Corporation’s derivatives designated in hedge relationships were as follows:

Asset Derivatives

Liability Derivatives

March 31, 2010

December 31, 2009

March 31, 2009

March 31, 2010

December 31, 2009

March 31, 2009

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

$

—

$

—

$

1,452

$

—

$

640

$

—

$

370,947

$

28,762

$

398,895

$

27,769

$

460,159

$

45,709

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

     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. 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 entered 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 Federal Funds borrowings. The Corporation entered into a swap with the counterparty during which time the Corporation paid a fixed rate and received a floating rate based on the current effective Federal Funds rate. The Corporation then borrowed Federal Funds in an amount equal to at least the outstanding notional amount of the swap(s) which resulted in the Corporation being left with a fixed rate instrument. These instruments were designated as cash flow hedges. The last Federal Funds interest rate swap matured in the quarter ended March 31, 2009.

26

     There were no cash flow hedges outstanding as of March 31, 2010 and there was no activity associated with cash flow hedges for the quarter ended March 31, 2010. For the quarter ended March 31, 2009, the amount of the hedge effectiveness on cash flow hedges recognized in OCI and reclassified from OCI into other income as well as the amount of hedge ineffectiveness recognized in other income is as follows:

		Gain Reclassified
		from Accumulated OCI		Gain Recognized in
Amount of Gain / (Loss)		into Income		Income on Derivative
Recognized in OCI		(Effective Portion)		(Ineffective Portion)
$	0	$	692	$	328

Derivatives Not Designated in Hedge Relationships

     As of March 31, 2010, December 31, 2009 and March 31, 2009, the notional values or contractual amounts and fair value of the Corporation’s derivatives not designated in hedge relationships were as follows:

																										��
	Asset Derivatives													Liability Derivatives
	March 31, 2010				December 31, 2009				March 31, 2009					March 31, 2010				December 31, 2009				March 31, 2009
	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	$	694,277	$	33,510	$	639,285	$	26,840	$	543,789	$	42,385		$	694,277	$	33,510	$	686,947	$	30,717	$	594,065	$	48,914
Mortgage loan commitments		106,894		1,239		55,023		396		82,519		2,408			—		—		—		—		—		—
Forward sales contracts		68,290		125		67,085		884		99,565		(1,139	)		—		—		—		—		—		—
TBA Securities		—		—		—		—		211,237		(145	)		—		—		—		—		—		—
Credit contracts		—		—		—		—		—		—			61,876		—		62,458		—		62,189		—
Other		—		—		—		—		—		—			18,912		—		18,171		—		11,551		—
Total	$	869,461	$	34,874	$	761,393	$	28,120	$	937,110	$	43,509		$	775,065	$	33,510	$	767,576	$	30,717	$	667,805	$	48,914

(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 the Back-to-Back Program, which is 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; therefore, each swap is accounted for as a standalone derivative.

     The Corporation had other interest rate swaps associated with fixed rate commercial loans with a notional value of $47.7 million and $50.3 million as of December 31, 2009 and March 31, 2009, respectively. These swaps were accounted for as standalone derivatives. This portfolio of interest rate swaps was terminated in January 2010.

27

     Mortgage banking. In the normal course of business, the Corporation sells originated mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Corporation has exposure to movements in interest rates associated with mortgage loans that are in the “mortgage pipeline” and the “mortgage warehouse”. A pipeline loan is one in which the Corporation has entered into a written mortgage loan commitment with a potential borrower that will be held for resale. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse of loans awaiting sale and delivery into the secondary market.

     Written loan commitments that relate to the origination of mortgage loans that will be held for resale are considered free-standing derivatives and do not qualify for hedge accounting. Written loan commitments generally have a term of up to 60 days before the closing of the loan. The loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected “fallout” (loan commitments not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon an interest rate lock loan commitment at one lender and enter into a new lower interest rate lock loan commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.

     Written loan commitments in which the borrower has locked in an interest rate results in market risk to the Corporation to the extent market interest rates change from the rate quoted to the borrower. The Corporation economically hedges the risk of changing interest rates associated with its interest rate lock commitments by entering into forward sales contracts.

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

     Effective August 1, 2008, the Corporation elected to fair value, on a prospective basis, newly originated conforming fixed-rate and adjustable-rate first mortgage warehouse loans. Prior to this election, all warehouse loans were carried at the lower of cost or market and a 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 the Corporation’s election to prospectively account for substantially all of its mortgage loan warehouse products at fair value it discontinued the application of designated hedging relationships for 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

28

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. There were no outstanding TBA Securities contracts as of March 31, 2010 or December 31, 2009. The Corporation held $211.2 million in outstanding TBA contracts as of March 31, 2009.

     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 March 31, 2010, 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 $4.1 million as of March 31, 2010. The fair values of the written swap participations were not material at March 31, 2010, December 31, 2009 and March 31, 2009.

     Gains and losses recognized in income on non-designated hedging instruments for the quarters ended March 31, 2010 and 2009 are as follows:

		Amount of Gain / (Loss)
		Recognized in Income on
		Derivative
Derivatives not	Location of Gain / (Loss)
designated as hedging	Recognized in Income on	Quarter ended,			Quarter ended,
instruments	Derivative	March 31, 2010			March 31, 2009
IRLCs	Other income	$	843		$	1,817
Forward sales contracts	Other income		(758	)		(622	)
TBA Securities	Other income		—			(2,106	)
Credit contracts	Other income		—			—
Other	Other expenses		—			—
Total		$	85		$	(911	)

29

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. 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 $73.7 million, $70.0 million and $81.9 million as of March 31, 2010, December 31, 2009 and March 31, 2009, 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
	Three months ended
	March 31,
	2010			2009
Components of Net Periodic Pension Cost
Service Cost	$	1,480		$	1,322
Interest Cost		2,800			2,751
Expected return on assets		(3,015	)		(2,805	)
Amortization of unrecognized prior service costs		98			85
Cumulative net loss		1,427			758
Net periodic pension cost	$	2,790		$	2,111

30

	Postretirement Benefits
	Three months ended
	March 31,
	2010		2009
Components of Net Periodic Postretirement Cost
Service Cost	$	15	$	15
Interest Cost		240		299
Cumulative net loss		4		9
Net Postretirement Benefit Cost		259		323
Curtailment Gain		—		(9,543	)
Net periodic postretirement (benefit)/cost	$	259	$	(9,220	)

     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 the Corporation’s subsidy toward retiree medical coverage. The elimination of Corporation subsidized retiree medical coverage resulted in an accounting curtailment.

     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 Measurement

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

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

31

• 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 at March 31, 2010:

	Level 1		Level 2		Level 3		Total
Available-for-sale securities	$	3,404	$	3,054,523	$	43,813	$	3,101,740
Residential loans held for sale		—		16,009				16,009
Derivative assets		—		34,874				34,874
Total assets at fair value on a recurring basis	$	3,404	$	3,105,406	$	43,813	$	3,152,623
Derivative liabilities		—		62,272		—		62,272
Total liabilities at fair value on a recurring basis	$	—	$	62,272	$	—	$	62,272

Note: There were no transfers between Levels 1 and 2 of the fair value hiearchy during the quarter ended March 31, 2010.

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

     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.

32

			Level 2				Level 3
			Independent				Independent
	# Issues		Pricing Service		# Issues		Broker Quotes
U.S. government agency debentures		18	$	279,640		—	$	—
U.S States and political subdivisions		938		292,986		—		—
Residential mortgage-backed securities:
U.S. government agencies		186		1,709,579		—		—
Residential collateralized mortgage-backed securities:
U.S. government agencies		73		772,317		1		1
Non-agency		1		1		1		18
Corporate debt securities		—		—		8		43,794
		1,216	$	3,054,523		10	$	43,813

     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 agencies and MBSs that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. 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. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service 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 less than 2% 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 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, the Corporation elected to account for residential mortgage loans originated subsequent to such date at fair value. Previously, 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

33

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

     Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation’s Asset and Liability Committee are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses due to 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 for the quarter ended March 31, 2010.

     The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended March 31, 2010 are summarized follows:

34

											Total changes
			Total		Purchases, sales				Fair value		in fair values
	Fair Value		unrealized		issuances and				quarter ended		included in current
	January 1, 2010		gains/(losses) (a)		settlements, net		Transfers		March 31, 2010		period earnings
Other debt securities	$	42,447	$	1,366	$	—	$	—	$	43,813	$	—

(a) Reported in other comprehensive income (loss)

     Certain financial assets and liabilities are measured at fair value on a nonrecurring basis. Generally, nonrecurring valuations are the result of applying accounting standards that require assets or liabilities to be assessed for impairment, or recorded at the lower-of-cost or fair value. The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2010:

	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	—	$	21,201	$	21,201
Impaired and nonaccrual loans		—		—		109,645		109,645
Other property (1)		—		—		28,850		28,850
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	159,696	$	159,696

(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 fair 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

35

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 price opinions. These measurements were classified as Level 3.

     Other Property.Other property includes foreclosed assets and properties securing residential and commercial loans. Assets acquired through, or in lieu of, loan foreclosures are recorded initially at the lower of the loan balance or fair value, less estimated selling costs, upon the date of foreclosure. Fair value is based upon appraisals or third-party price opinions and, accordingly, considered a Level 3 classification. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting a new carrying amount.

Financial Instruments Recorded at Fair Value

     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

36

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.

     Effective August 1, 2008, the Corporation elected to fair value newly originated conforming fixed rate and adjustable-rate first mortgage loans held for sale. Previously, these loans had been recorded at the lower of cost or market value. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of hedge accounting under GAAP. The fair value option was not elected for loans held for investment.

     The following table reflects the differences, as of March 31, 2010, between the fair value carrying amount of residential mortgages held for sale and the aggregate unpaid principal amount the Corporation is 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
	Carrying Amount		Principal		Unpaid Principal
Loans held for sale reported at fair value	$	16,009	$	15,669	$	340

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

     Loans held for sale are measured at fair value with changes in fair value recognized in current earnings. The change in fair value for residential loans held for sale measured at fair value included in earnings for the quarter ended March 31, 2010 was not significant.

Disclosures about Fair Value of Financial Instruments

     The carrying amount and fair value of the Corporation’s financial instruments are shown below.

37

	March 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	721,938	$	721,938	$	161,033	$	161,033
Investment securities		3,301,039		3,301,039		2,744,838		2,744,838
Loan held for sale		16,009		16,009		16,828		16,828
Net noncovered loans		7,072,716		6,673,377		6,808,397		6,362,674
Covered loans and loss share receivable		277,315		277,315		—		—
Accrued interest receivable		41,763		41,763		39,274		39,274
Mortgage servicing rights		20,652		21,201		20,784		22,241
Derivative assets		34,874		34,874		28,120		28,120
Financial liabilities:
Deposits	$	9,370,009	$	9,378,490	$	7,515,796	$	7,519,604
Federal funds purchased and securities sold under agreements to repurchase		896,330		899,729		996,345		998,645
Wholesale borrowings		677,715		685,442		740,105		745,213
Accrued interest payable		15,303		15,303		11,336		11,336
Derivative liabilities		62,272		62,272		58,486		58,486

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

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

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

     Net noncovered 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.

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

     Loss share receivable— This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable

38

with the covered assets should FirstMerit Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC.

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

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

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

     Federal funds purchased and securities sold under agreements to repurchase 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. Mortgage Servicing Rights and Mortgage Servicing Activity

     The Corporation serviced for third parties approximately $2.0 billion of residential mortgage loans at March 31, 2010 and December 31, 2009. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.3 million and $1.2 million in each of the three months ended March 31, 2010 and 2009, respectively.

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

39

     Changes in the carrying amount of mortgage servicing rights are as follows:

	Three months ended
	March 31,
	2010			2009
Balance at beginning of period	$	20,784		$	18,778
Addition of mortgage servicing rights		717			1,437
Amortization		(849	)		(790	)
Changes in allowance for impairment		—			(364	)
Balance at end of period	$	20,652		$	19,061
Fair value at end of period	$	21,201		$	19,078

     On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No valuation allowances were required as of March 31, 2010 and December 31, 2009. No permanent impairment losses were written off against the allowance during the quarters ended March 31, 2010 and March 31, 2009.

     Key economic assumptions and the sensitivity of the current fair value of the mortgage servicing rights related to immediate 10% and 25% adverse changes in those assumptions at March 31, 2010 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the mortgage servicing rights is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.

Prepayment speed assumption (annual CPR)		9.75	%
Decrease in fair value from 10% adverse change	$	776
Decrease in fair value from 25% adverse change		1,864
Discount rate assumption		9.71	%
Decrease in fair value from 100 basis point adverse change	$	731
Decrease in fair value from 200 basis point adverse change		1,409
Expected weighted-average life (in months)		106.1

40

12. Contingencies and Guarantees

     Litigation

     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.

     Commitments to Extend Credit

     Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance. Additional information is provided in Note 8 (Derivatives and Hedging Activities). Commitments generally are extended at the then prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The allowance for unfunded lending commitments at March 31, 2010 was $6.3 million. Additional information pertaining to this allowance is included under the heading “Allowance for Loan Losses and Reserve for Unfunded Lending Commitments” within Management’s Discussion and Analysis of Financial Condition and Results of Operation of this report.

     The following table shows the remaining contractual amount of each class of commitments to extend credit as of March 31, 2010. This amount represents the Corporation’s maximum exposure to loss if the customer were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.

	March 31, 2010
Loan Commitments
Commercial	$	1,435,466
Consumer		1,652,345
Total loan commitments	$	3,087,811

41

     Guarantees

     The Corporation is a guarantor in certain agreements with third parties. The following table shows the types of guarantees the Corporation had outstanding as of March 31, 2010.

	March 31, 2010
Financial guarantees
Standby letters of credit	$	144,963
Loans sold with recourse		55,439
Total loan commitments	$	200,402

     Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The credit risk involved in issuing letters of credit is essentially the same as involved in extending loan facilities to customers. Collateral held varies, but may include marketable securities, equipment and real estate. Any amounts drawn under standby letters of credit are treated as loans; they bear interest and pose the same credit risk to the Corporation as a loan. Except for short-term guarantees of $88.4 million at March 31, 2010, the remaining guarantees extend in varying amounts through 2014.

     In recourse arrangements, the Corporation accepts 100% recourse. By accepting 100% recourse, the Corporation is assuming the entire risk of loss due to borrower default. The Corporation uses the same credit policies originating loans which will be sold with recourse as it does for any other type of loan. The Corporation’s exposure to credit loss, if the borrower completely failed to perform and if the collateral or other forms of credit enhancement all prove to be of no value, is represented by the notional amount less any allowance for possible loan losses. An allowance of $3.0 million was established as of March 31, 2010.

42

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)	March 31, 2010								December 31, 2009								March 31, 2009
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
ASSETS
Cash and due from banks	$	521,666							$	183,215							$	209,922
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,377,729			22,909		3.91	%		2,222,771			97,871		4.40	%		2,251,028			25,954		4.68	%
Obligations of states and political subdivisions (tax exempt)		344,899			5,139		6.04	%		321,919			19,718		6.13	%		320,943			4,914		6.21	%
Other securities and federal funds sold		194,991			1,986		4.13	%		204,272			8,394		4.11	%		212,995			2,341		4.46	%
Total investment securities and federal funds sold		2,917,619			30,034		4.17	%		2,748,962			125,983		4.58	%		2,784,966			33,209		4.84	%
Loans held for sale		14,538			184		5.13	%		19,289			1,032		5.35	%		23,248			322		5.62	%
Noncovered loans		7,022,381			81,829		4.73	%		7,156,983			339,381		4.74	%		7,381,019			87,508		4.81	%
Covered loans and loss share receivable		126,333			1,761		5.65	%		—			—		—			—			—		—
Total earning assets		10,080,871			113,808		4.58	%		9,925,234			466,396		4.70	%		10,189,233			121,039		4.82	%
Allowance for loan losses		(115,031	)							(108,017	)							(102,533	)
Other assets		869,604								793,062								818,420
Total assets	$	11,357,110							$	10,793,494							$	11,115,042
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	2,146,969			—		—		$	1,910,171			—		—		$	1,767,885			—		—
Demand — interest bearing		687,233			152		0.09	%		656,367			600		0.09	%		655,279			155		0.10	%
Savings and money market accounts		3,709,246			7,601		0.83	%		2,886,842			23,472		0.81	%		2,638,166			5,377		0.83	%
Certificates and other time deposits		1,797,348			6,406		1.45	%		2,056,208			54,610		2.66	%		2,582,788			18,588		2.92	%
Total deposits		8,340,796			14,159		0.69	%		7,509,588			78,682		1.05	%		7,644,118			24,120		1.28	%
Securities sold under agreements to repurchase		951,927			1,127		0.48	%		1,013,167			4,764		0.47	%		941,112			999		0.43	%
Wholesale borrowings		708,414			6,174		3.53	%		952,979			27,317		2.87	%		1,151,777			7,343		2.59	%
Total interest bearing liabilities		7,854,168			21,460		1.11	%		7,565,563			110,763		1.46	%		7,969,122			32,462		1.65	%
Other liabilities		262,405								267,835								304,759
Shareholders’ equity		1,093,568								1,049,925								1,073,276
Total liabilities and shareholders’ equity	$	11,357,110							$	10,793,494							$	11,115,042
Net yield on earning assets	$	10,080,871			92,348		3.72	%	$	9,925,234			355,633		3.58	%	$	10,189,233			88,577		3.53	%
Interest rate spread							3.47	%							3.24	%							3.17	%

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.

43

HIGHLIGHTS OF FIRST QUARTER 2010 PERFORMANCE

Earnings Summary

     The Corporation reported first quarter 2010 net income of $18.0 million, or $0.21 per diluted share. This compares with $14.5 million, or $0.17 per diluted share, for the fourth quarter 2009 and $29.4 million, or $0.33 per diluted share, for the first quarter 2009.

     Returns on average common equity (“ROE”) and average assets (“ROA”) for the first quarter 2010 were 6.68% and 0.64%, respectively, compared with 5.38% and 0.54% for the fourth quarter 2009 and 12.39% and 1.07% for the first quarter 2009.

     In the first quarter of 2010, the Corporation completed two strategic acquisitions in the Chicago area: 24 branches of First Bank and certain assets and substantially all of the deposits of the 4-branch George Washington Savings Bank.

     Net interest margin was 3.72% for the first quarter of 2010 compared with 3.64% for the fourth quarter of 2009 and 3.53% for the first quarter of 2009. The Corporation’s continued emphasis on core deposit gathering and shifting deposit mix away from higher-priced certificate of deposit products drove the expansion over both time periods.

     Average loans during the first quarter of 2010 increased $150.5 million, or 2.16%, compared with the fourth quarter of 2009 and decreased $281.5 million, or 3.81%, compared with the first quarter of 2009. Excluding $286.8 million in average loan balances related to the aforementioned Chicago bank acquisitions, average loans decreased $119.9 million, or 1.73%, compared with the fourth quarter of 2009 and decreased $568.4 million, or 7.70% compared with the first quarter of 2009. The decrease in average balances reflects a reduced level of commercial and consumer credit demand and the focus on debt reduction by the Corporation’s business and retail customer base.

     Average deposits during the first quarter of 2010 increased $943.2 million, or 12.75%, compared with the fourth quarter of 2009 and increased $696.7 million, or 9.11%, compared with the first quarter of 2009. During the first quarter of 2010 the Corporation increased its average core deposits, which excludes time deposits, by $687.3 million, or 11.74%, compared with the fourth quarter of 2009, and $1.5 billion, or 29.28%, compared with the first quarter of 2009. Acquisitions represent $706.5 million of average deposit growth and $275.5 million of average core deposit growth in the first quarter of 2010.

     Average investments during the first quarter of 2010 increased $168.4 million, or 6.13%, compared with the fourth quarter of 2009 and increased $132.7 million, or 4.76%, over the first quarter of 2009.

     Net interest income on a fully tax-equivalent (“FTE”) basis was $92.3 million in the first quarter 2010 compared with $89.2 million in the fourth quarter of 2009 and $88.6 million in the first quarter of 2009. Compared with the fourth quarter of 2009, average earning assets increased $366.7 million, or 3.77% and decreased $108.4 million or 1.06% compared to the first quarter of 2009.

44

     Noninterest income net of securities transactions for the first quarter of 2010 was $53.9 million, an increase of $3.2 million, or 6.27%, from the fourth quarter of 2009 and a decrease of $1.2 million, or 2.25%, from the first quarter of 2009 which included $9.5 million due to curtailment of the postretirement medical benefit plan for active employees. Included in noninterest income in the first quarter 2010 was a $5.1 million ($3.3 million after-tax) gain related to the George Washington acquisition.

     The primary changes in other income for the 2010 first quarter as compared to the first quarter of 2009 were as follows: trust income was $5.3 million, an increase of 10.25% primarily due to advances in the equity markets; service charges on deposits were $15.4 million, an increase of 8.49% due to an increase in new accounts; credit card fees were $11.6 million, an increase of 4.28% attributable to the improvement in the economy; loan sales and servicing income was $3.2 million, an increase of 38.63%, primarily attributable to refinancing in the current low rate mortgage market environment; bank owned life insurance income was $5.7 million, an increase of $2.6 million attributable to realized policy proceeds. A separate line item was added for the $5.1 million gain on the acquisition of George Washington, while also separately stated in the first quarter of 2009 was the $9.5 million adjustment due to the curtailment of the postretirement medical plan for active employees.

     Other income, net of securities gains, as a percentage of net revenue for the first quarter of 2010 was 36.88% compared with 36.28% for fourth quarter of 2009 and 38.39% for the first quarter of 2009. Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

     Noninterest expense for the first quarter of 2010 was $94.0 million, a decrease of $0.9 million, or 0.92%, from the fourth quarter of 2009 and an increase of $10.8 million, or 12.99%, from the first quarter of 2009. For the three months ended March 31, 2010, increases in operating expenses compared to the first quarter 2009 were primarily attributable to increased salary and benefits, professional services and FDIC expense. One time expenses associated with data processing conversions and related expenses for the acquisitions totaled $2.7 million.

     During the first quarter of 2010, the Corporation reported an efficiency ratio of 64.10%, compared with 67.74% for the fourth quarter of 2009 and 57.81% for the first quarter of 2009.

     Net charge-offs totaled $22.8 million, or 1.36% of average loans, in the first quarter of 2010 compared with $31.2 million, or 1.79% of average loans, in the fourth quarter 2009 and $15.6 million, or 0.86% of average loans, in the first quarter of 2009.

     Nonperforming assets totaled $123.3 million at March 31, 2010, an increase of $22.3 million compared with December 31, 2009 and an increase of $47.1 million compared with March 31, 2009. Nonperforming assets at March 31, 2010 represented 1.80% of period-end loans plus other real estate compared with 1.48% at December 31, 2009 and 1.04% at March 31, 2009.

     The allowance for loan losses totaled $117.8 million at March 31, 2010, an increase of $2.7 million from December 31, 2009. At March 31, 2010, the allowance for loan losses was 1.72% of period-end loans compared with 1.68% at December 31, 2009 and 1.45% at March 31,

45

2009. 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 1.82% of period-end loans at March 31, 2010, compared with 1.77% at December 31, 2009 and 1.53% at March 31, 2009. The allowance for credit losses to nonperforming loans was 110.80% at March 31, 2010, compared with 131.82% at December 31, 2009 and 159.93% at March 31, 2009.

     The Corporation’s total assets at March 31, 2010 were $12.3 billion, an increase of $1.8 billion inclusive of intangible assets, or 16.92%, compared with December 31, 2009 and an increase of $1.4 billion, or 12.32%, compared with March 31, 2009. Total loans increased $436.3 million, or 6.30%, compared with December 31, 2009 and increased $9.0 million, or 0.12%, over March 31, 2009.

     Total deposits were $9.4 billion at March 31, 2010, an increase of $1.9 billion, or 24.67%, from December 31, 2009 and an increase of $1.7 billion, or 22.03%, from March 31, 2009. The increase compared with March 31, 2009 was driven by both an overall increase in savings and demand deposits and the acquisitions of the First Bank branches and George Washington. Core deposits totaled $7.0 billion at March 31, 2010, an increase of $852.4 million, or 13.85%, from December 31, 2009 and an increase of $1.7 billion, or 32.70%, from March 31, 2009.

     Shareholders’ equity was $1,155.4 million at March 31, 2010, compared with $1,065.6 million at December 31, 2009 and $1,084.3 million at March 31, 2009. The Corporation maintained a strong capital position as tangible common equity to assets was 7.93% at March 31, 2010, compared with 8.89% and 7.60% at December 31, 2009 and March 31, 2009, respectively. The common dividend per share paid in the first quarter 2010 was $0.16.

Acquisitions

     In the first quarter of 2010, the Corporation completed two strategic acquisitions. On February 19, 2010, the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois, area. Excluding the purchase accounting adjustments, the acquisition included the assumption of approximately $1.2 billion in deposits and the purchase of $301.2 million of loans and $23.0 million in real and personal property associated with the acquired branch locations. The Bank received cash of $832.5 million to assume the net liabilities. All of the loans in the acquired portfolio were performing and pass-grade credits. This acquisition was accounted for under the acquisition method in accordance with ASC 805.

     Also, on February 19, 2010, the Bank acquired certain assets and assumed substantially all of the deposits and liabilities of George Washington through a purchase and assumption agreement with the FDIC. The Illinois Department of financial and Professional Regulation, Division of Banking, declared George Washington closed on February 19, 2010 and appointed the FDIC as receiver. Excluding the effects of purchase accounting adjustments, the Bank acquired approximately $403.9 million in assets and assumed $395.7 million of deposits of George Washington.

     In connection with the George Washington acquisition, the Bank entered into a loss sharing agreement with the FDIC that collectively covers $327.1 million of assets including

46

single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. The Bank acquired other George Washington assets that are not covered by the loss sharing agreement with the FDIC including investment securities purchased at fair market value and other tangible assets.

     See Note 2 (Business Combinations), in the Notes to Unaudited Consolidated Financial Statements for additional information related to the details of these transactions.

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 and wholesale borrowings). Net interest income is affected by market interest rates on both earning assets and interest bearing liabilities, the level of earning assets being funded by interest bearing liabilities, noninterest-bearing liabilities, the mix of funding between interest bearing liabilities, noninterest-bearing liabilities and equity, and the growth in earning assets.

     Net interest income for the quarter ended March 31, 2010 was $90.4 million compared to $86.9 million for the quarter ended March 31, 2009. 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 $2.0 million and $1.7 million for the quarters ending March 31, 2010 and 2009, respectively.

     FTE net interest income for the quarter ended March 31, 2010 was $92.3 million compared to $88.6 million for the three months ended March 31, 2009.

     As illustrated in the following rate/volume analysis table, interest income and interest expense both decreased due to the falling interest rate environment.

47

	Quarters ended March 31, 2010 and 2009
RATE/VOLUME ANALYSIS	Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total
INTEREST INCOME — FTE
Investment securities	$	1,565		$	(4,740	)	$	(3,175	)
Loans held for sale		(112	)		(26	)		(138	)
Noncovered loans		(4,198	)		(1,481	)		(5,679	)
Covered loans and loss share receivable		1,761			—			1,761
Total interest income — FTE	$	(984	)	$	(6,247	)	$	(7,231	)
INTEREST EXPENSE
Demand deposits-interest bearing	$	7		$	(10	)	$	(3	)
Savings and money market accounts		2,195			29			2,224
Certificates of deposits and other time deposits		(4,579	)		(7,603	)		(12,182	)
Securities sold under agreements to repurchase		12			116			128
Wholesale borrowings		(3,358	)		2,189			(1,169	)
Total interest expense	$	(5,723	)	$	(5,279	)	$	(11,002	)
Net interest income — FTE	$	4,739		$	(968	)	$	3,771

     The net interest margin is calculated by dividing net interest income FTE by average earning assets. As with net interest income, the net interest margin is affected by the level and mix of earning assets, the proportion of earning assets funded by non-interest bearing liabilities, and the interest rate spread. In addition, the net interest margin is impacted by changes in federal income tax rates and regulations as they affect the tax-equivalent adjustment.

     The following table provides 2010 FTE net interest income and net interest margin totals as well as 2009 comparative amounts:

	Quarters ended
	March 31,
(Dollars in thousands)	2010			2009
Net interest income	$	90,394		$	86,894
Tax equivalent adjustment		1,954			1,683
Net interest income — FTE	$	92,348		$	88,577
Average earning assets	$	10,080,871		$	10,189,233
Net interest margin — FTE		3.72	%		3.53	%

     Average loans outstanding (excluding covered loans) for the current year and prior year first quarters totaled $7.0 billion and $7.4 billion, respectively. Increases in average loan

48

balances from first quarter 2009 to the first quarter 2010 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 first quarter 2009, were as follows: commercial loans were down $139.4 million or 3.22%; home equity loans were up $20.1 million or 2.73%; mortgage loans were down $82.0 million or 15.28%; installment loans, both direct and indirect declined $155.8 million or 10.00%; credit card loans increased $3.8 million or 2.57%; and leases decreased $5.3 million or 8.06%. Average covered loans have been separately stated and are described in more detail in Note 2 (Business Combinations). The majority of fixed-rate mortgage loan originations are sold to investors through the secondary mortgage loan market. Average outstanding loans for the 2010 and 2009 first quarters equaled 70.91% and 72.44% of average earning assets, respectively.

     Average deposits were $8.3 billion during the 2010 first quarter, up $696.7 million, or 9.11%, from the same period last year. For the quarter ended March 31, 2010, average core deposits (which are defined as checking accounts, savings accounts and money market savings products) increased $1.5 billion, or 29.28%, and represented 78.45% of total average deposits, compared to 66.21% for the 2009 first quarter. Average certificates of deposit (“CDs”) decreased $785.4 million, or 30.41%, compared to the prior year. Average wholesale borrowings decreased $443.4 million, and as a percentage of total interest-bearing funds equaled 9.02% for the 2010 first quarter and 14.45% for the same quarter one year ago. Securities sold under agreements to repurchase increased $10.8 million, and as a percentage of total interest bearing funds equaled 12.12% for the 2010 first quarter and 11.81% for the 2009 first quarter. Average interest-bearing liabilities funded 77.91% of average earning assets in the current year quarter and 78.21% during the quarter ended March 31, 2009.

Other Income

     Excluding investment gains, other income for the quarter ended March 31, 2010 totaled $53.9 million, a decrease of $1.2 million from the $55.2 million earned during the same period one year ago. Other income as a percentage of net revenue (FTE net interest income plus other income, less security gains from securities) was 36.88%, compared to 38.39% for the same quarter one year ago.

     Trust department income was $5.3 million, up 10.25% primarily due to advances in the equity markets. Service charges on deposits were $15.4 million, up 8.49% primarily attributable to an increase in new accounts. Credit card fees were $11.6 million, up 4.28% reflecting the slight improvement in the economy. Loan sales and servicing income was $3.2 million, an increase of $0.9 million, primarily attributable improved revenue from the mortgage servicing function. Bank owned life insurance income was $5.7 million, up 87.46% attributable to realized policy proceeds. A separate line item was added for the $5.1 million gain on the acquisition of George Washington, while also separately stated in the first quarter of 2009 was the $9.5 million adjustment due to the curtailment of the postretirement medical plan for active employees. Other operating income was $3.3 million, a decrease of $1.4 million over the first quarter of 2009.

49

Other Expenses

     Other (non-interest) expenses totaled $94.0 million for the first quarter 2010 compared to $83.2 million for the same 2009 quarter, an increase of $10.8 million, or 12.99%.

     For the three months ended March 31, 2010, FDIC expense increased $1.2 million over the prior year quarter due to increased assessments enacted in April 2009. Increases in operating expenses compared to the first quarter of 2009 were primarily attributable to increased salary, occupancy and professional services related to the first quarter 2010 acquisitions. One time expenses associated with the data processing conversions of the acquisitions totaled $2.7 million.

     The efficiency ratio for the first quarter 2010 was 64.1%, compared to 57.81% during the same period in 2009. The “lower is better” efficiency ratio indicates the percentage of operating costs that are used to generate each dollar of net revenue — that is during 2009, 64.1 cents was spent to generate each $1 of net revenue. Net revenue is defined as net interest income, on a tax-equivalent basis, plus other income less gains from the sales of securities.

Federal Income Taxes

     Federal income tax expense was $6.8 million and $11.4 million for the quarters ended March 31, 2010 and 2009, respectively. The effective federal income tax rate for the first quarter 2010 was 27.39%, compared to 27.88% for the same quarter 2009. Tax reserves have been specifically estimated for potential at-risk items in accordance with ASC 740,Income Taxes. Further federal income tax information is described in Note 1 (Summary of Significant Accounting Policies) and Note 11 (Federal Income Taxes) in the 2009 Form 10-K.

50

FINANCIAL CONDITION

Acquisitions

     On February 19, 2010, the Bank completed the acquisition of certain assets and the transfer of certain liabilities with respect to 24 branches of First Bank located in the greater Chicago, Illinois, area. The Bank acquired assets with an acquisition date fair value of approximately $1.2 billion, including $276.5 million of loans, and $41.9 million of premises and equipment, and assumed $1.2 billion of deposits. The Bank received cash of $832.5 million to assume the net liabilities. The Bank recorded a core deposit intangible asset of $3.2 million and goodwill of $48.3 million.

     On February 19, 2010, the Bank entered into a purchase and assumption agreement with loss share with the FDIC to acquire deposits, loans, and certain other liabilities and assets of George Washington in an FDIC-assisted transaction. The Bank acquired assets with a fair value of approximately $368.1 million, including $171.4 million of loans, $15.4 million of investment securities, $58.0 million of cash and due from banks, $11.5 million in other real estate, and $403.2 million in liabilities, including $400.7 million of deposits. The Bank recorded a core deposit intangible asset of $1.0 million and received a cash payment from the FDIC of approximately $40.2 million. The Bank entered into loss share agreements with the FDIC and recorded, at its acquisition date fair value, a loss share receivable of $107.6 million, which is classified as part of covered loans in the accompanying consolidated balance sheets. The transaction resulted in a gain on acquisition of $5.1 million, which is included in noninterest income in the accompanying consolidated statements of income and comprehensive income.

     See Note 2 (Business Combinations), in the notes to unaudited consolidated financial statements for additional information related to the details of these transactions.

Investment Securities

     At March 31, 2010, the securities portfolio totaled $3.2 billion; $67.3 million of that amount was held-to-maturity securities and the remainder was securities available-for-sale. In comparison, as of March 31, 2009, the total portfolio was $2.6 billion, including $30.6 million of held-to-maturity securities and $2.6 billion of securities available-for-sale.

     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. Held-to-maturity securities consist principally of securities issued by state and political subdivisions. Other investments include FHLB and FRB stock.

     Net unrealized gains were $62.0 million, $55.1 million and $25.5 million at March 31, 2010, December 31, 2009, and March 31, 2009, respectively. The improvement in the fair value of the investment securities is driven by government agency securities held in portfolio.

     The Corporation conducts a regular assessment of its investment securities to determine whether any securities are other-than-temporary impaired. Only the credit portion of OTTI is to

51

be recognized in current earnings for those 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 is to be included in accumulated other comprehensive loss, net of income tax.

     Gross unrealized losses of $19.3 million, compared to $21.6 million as of December 31, 2009, and $37.9 million at March 31, 2009 were concentrated within trust preferred securities held in the investment portfolio. The Corporation holds eight, single issuer, trust preferred securities. Such investments are less than 2% 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 market conditions which have caused risk premiums to increase markedly resulting in the decline in the fair value of the Corporation’s trust preferred securities. However, prices are recovering from their lows reflecting increased liquidity for these securities as well as an improvement in the credit profile of the issuers as improving.

     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) to the consolidated financial statements.

Loans

     Total loans outstanding at March 31, 2010 were $7.4 billion compared to $6.9 billion at December 31, 2009 and $7.3 billion at March 31, 2009.

	As of		As of		As of
	March 31,		December 31,		March 31,
	2010		2009		2009
			(In thousands)
Commercial loans	$	4,389,859	$	4,066,522	$	4,344,915
Mortgage loans		447,575		463,416		524,909
Installment loans		1,382,522		1,425,373		1,533,885
Home equity loans		766,073		753,112		741,073
Credit card loans		145,029		153,525		141,597
Leases		59,464		61,541		64,384
Total noncovered loans		7,190,522		6,923,489		7,350,763
Covered Loans		169,270		—		—
Less allowance for loan losses		117,806		115,092		106,257
Net loans	$	7,072,716	$	6,808,397	$	7,244,506

     Despite the slowdown of the manufacturing-based economy in Northeast Ohio, commercial loans increased 1.03% from the prior year first quarter. Single family mortgage loans continue to be originated by the Corporation’s mortgage subsidiary and then sold into the secondary mortgage market or held in portfolio.

52

Allowance for Loan Losses and Reserve for Unfunded Commitments

     The Corporation uses a vendor based loss migration model to forecast losses for commercial loans. The model creates loss estimates using twelve-month (monthly rolling) vintages and calculates cumulative three years loss rates within two different scenarios. One scenario uses five year historical performance data while the other one uses two year historical data. The calculated rate is the average cumulative expected loss of the two and five year data set. As a result, this approach lends more weight to the more recent performance and would be more conservative.

     The uncertain economic conditions in which we are currently operating have resulted in risks that differ from our historical loss experience. Accordingly, Management deemed it appropriate and prudent to apply qualitative factors (“q-factors”) and assign additional reserves. These q-factors are supported by judgments made by experienced credit risk management personnel and represent risk associated with the portfolio given the uncertainty and the inherent imprecision of estimating future losses.

     As required by current accounting guidance, the acquired loans from First Bank were recorded at fair value as of the date of acquisition, with no carryover of related allowances. The determination of the fair value of the loans resulted in a write-down in the value of the loans, which was assigned to an accretable balance which will be recognized as interest income over the remaining term of the loans. The acquired loans from George Washington were also recorded at fair value as of the date of acquisition, with no carryover of related allowances. The determination of the fair value of the loans resulted in a write-down in the value of the loans, which was assigned a nonaccretable and an accretable balance which will be recognized as interest income over the remaining term of the loans. Also in connection with the George Washington acquisition, the Bank entered into loss sharing agreements with the FDIC that collectively cover single family residential mortgage loans, commercial real estate and commercial and industrial loans, and other real estate. (See Note 2 (Business Combinations) for additional information. Because acquired loans are required to be accounted for at fair value on the date of acquisition, Management believes that asset quality measures are generally more meaningful when acquired loans are excluded from such measures. Therefore, the asset quality ratios included herein exclude the acquired loans with a period end balance of $523.3 million. In addition, ratios of nonperforming loans exclude these acquired loans and other real estate, with a period end balance of $11.4 million, covered by the FDIC loss share agreements.

     At March 31, 2010 the allowance for loan losses was $117.8 million or 1.72% of loans outstanding, excluding acquired loans, compared to $115.1 million or 1.68% at year-end 2009 and $106.3 or 1.45% for the quarter ended March 31, 2009. There were no allowances for loan losses related to the $523.3 million in acquired loans at March 31, 2010. The allowance equaled 105.14% of nonperforming loans at March 31, 2010, compared to 125.55% at year-end 2009, and 151.35% for March 31, 2009. During 2008 additional reserves were established to address identified risks associated with the slow down in the housing markets and the decline in residential and commercial real estate values. These reserves totaled $20.0 million, $19.8 million, and $20.1 at March 31, 2010, December 31, 2010, and March 31, 2009, respectively. The increase in the additional allocation augmented the increase in the calculated loss migration analysis as the loans were downgraded during 2010. Nonperforming loans have increased by

53

$41.8 million over March 31, 2009, and $20.4 over December 31, 2009 primarily attributable to the declining economic conditions.

     Net charge-offs were $22.8 million for the first quarter ended 2010 compared to $87.1 million for year-end 2009 and $15.6 million in the first quarter ended 2009. As a percentage of average loans outstanding, net charge-offs equaled 1.36%, 1.22%, and 0.86% for March 31, 2010, December 31, 2009, and March 31, 2009, respectively. Losses are charged against the allowance for loan losses as soon as they are identified.

     The allowance for unfunded lending commitments at March 31, 2010, December 31, 2009, and March 31, 2009 was $6.3 million, $5.8 million and $6.0 million, respectively. The allowance for credit losses, which includes both the allowance for loan losses and the reserve for unfunded lending commitments, amounted to $124.1 million at first quarter-end 2010, $120.8 million at year-end 2009 and $112.3 million at first quarter-end 2009.

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.

54

	Quarter ended			Year Ended			Quarter ended
	March 31,			December 31,			March 31,
(In thousands)	2010			2009			2009
Allowance for Loan Losses
Allowance for loan losses-beginning of period	$	115,092		$	103,757		$	103,757
Provision for loan losses		25,493			98,433			18,065
Net charge-offs		(22,779	)		(87,098	)		(15,565	)
Allowance for loan losses-end of period	$	117,806		$	115,092		$	106,257
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	5,751		$	6,588		$	6,588
Provision for credit losses		586			(837	)		(569	)
Balance at end of period	$	6,337		$	5,751		$	6,019
Allowance for credit losses	$	124,143		$	120,843		$	112,276
Annualized net charge-offs as a % of average loans		1.36	%		1.22	%		0.86	%
Allowance for loan losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.72	%		1.68	%		1.45	%
As a percentage of nonperforming loans		105.14	%		125.55	%		151.35	%
As a multiple of annualized net charge offs		1.28	x		1.32	x		1.68	x
Allowance for credit losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.82	%		1.77	%		1.53	%
As a percentage of nonperforming loans		110.80	%		131.82	%		159.93	%
As a multiple of annualized net charge offs		1.34	x		1.39	x		1.78	x

(a) Excludes loss share receivable

     The allowance for credit losses increased $3.3 million from December 31, 2009 to March 31, 2010, and increased $11.9 million from March 31, 2009 to March 31, 2010. The increase for both periods was attributable to additional reserves that were established to address identified risks associated with the slow down in the housing markets 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.

55

	At March 31, 2010
	Loan Type
Allowance for Loan Losses Components:	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Impaired Loan Component:
Loan balance	$	16,805	$	68,777	$	—	$	—	$	—	$	—	$	—	$	85,582
Allowance		2,185		8,419		—		—		—		—		—		10,604
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		105,207		1,156		7,269										113,632
Grade 1 allowance		72		—		6										78
Grade 2 loan balance		43,085		38,301		63										81,449
Grade 2 allowance		50		63		—										113
Grade 3 loan balance		352,421		498,233		16,247										866,901
Grade 3 allowance		791		1,350		45										2,186
Grade 4 loan balance		980,056		1,621,687		35,020										2,636,763
Grade 4 allowance		9,165		16,206		327										25,698
Grade 5 (Special Mention) loan balance		69,325		89,821		852										159,998
Grade 5 allowance		2,717		4,402		34										7,153
Grade 6 (Substandard) loan balance		79,893		97,606		13										177,512
Grade 6 allowance		9,051		13,354		2										22,407
Grade 7 (Doubtful) loan balance		197		267		—										464
Grade 7 allowance		5		147		—										152
Consumer loans based on payment status:
Current loan balances						—		1,357,785		741,203		139,718		416,263		2,654,969
Current loans allowance						—		18,688		6,155		8,013		3,403		36,259
30 days past due loan balance						—		12,765		1,932		1,705		11,037		27,439
30 days past due allowance						—		2,031		582		917		475		4,005
60 days past due loan balance						—		3,907		642		1,270		2,516		8,335
60 days past due allowance						—		1,627		410		969		351		3,357
90+ days past due loan balance						—		2,268		1,044		2,336		17,759		23,407
90+ days past due allowance						—		1,526		1,049		2,259		960		5,794
Total loans	$	1,646,989	$	2,415,848	$	59,464	$	1,376,725	$	744,821	$	145,029	$	447,575	$	6,836,451
Total Allowance for Loan Losses	$	24,036	$	43,941	$	414	$	23,872	$	8,196	$	12,158	$	5,189	$	117,806

     Note: Total loans excludes loans acquired from First Bank and George Washington which were recorded at date of acquisition at their fair value.

56

	At December 31, 2009
	Loan Type
Allowance for Loan Losses Components:	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Impaired Loan Component:
Loan balance	$	17,480	$	50,345	$	—	$	—	$	—	$	—	$	—	$	67,825
Allowance		3,678		6,849		—		—		—		—		—		10,527
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		75,598		1,178		7,441										84,217
Grade 1 allowance		47		—		6										53
Grade 2 loan balance		59,946		74,839		67										134,852
Grade 2 allowance		52		88		—										140
Grade 3 loan balance		316,535		517,338		15,246										849,119
Grade 3 allowance		579		1,137		36										1,752
Grade 4 loan balance		1,030,872		1,647,918		38,179										2,716,969
Grade 4 allowance		8,666		16,306		257										25,229
Grade 5 (Special Mention) loan balance		42,066		40,748		30										82,844
Grade 5 allowance		1,224		1,873		1										3,098
Grade 6 (Substandard) loan balance		83,884		107,635		578										192,097
Grade 6 allowance		7,616		12,558		53										20,227
Grade 7 (Doubtful) loan balance		68		72		—										140
Grade 7 allowance	��	1		3		—										4
Consumer loans based on payment status:
Current loan balances								1,396,198		748,207		146,906		428,150		2,719,461
Current loans allowance								18,038		5,829		8,106		3,304		35,277
30 days past due loan balance								18,057		2,306		2,245		13,515		36,123
30 days past due allowance								2,813		677		1,178		571		5,239
60 days past due loan balance								5,919		1,678		1,622		4,301		13,520
60 days past due allowance								2,461		1,081		1,217		617		5,376
90+ days past due loan balance								5,199		921		2,752		17,450		26,322
90+ days past due allowance								3,458		912		2,618		1,182		8,170
Total loans	$	1,626,449	$	2,440,073	$	61,541	$	1,425,373	$	753,112	$	153,525	$	463,416	$	6,923,489
Total Allowance for Loan Losses	$	21,863	$	38,814	$	353	$	26,770	$	8,499	$	13,119	$	5,674	$	115,092

57

	At March 31, 2009
	Loan Type
Allowance for Loan Losses Components:	Commercial		Commercial R/E				Installment		Home Equity		Credit Card		Res Mortgage
(In thousands)	Loans		Loans		Leases		Loans		Loans		Loans		Loans		Total
Individually Impaired Loan Component:
Loan balance	$	11,861	$	52,038	$	—	$	—	$	—	$	—	$	—	$	63,899
Allowance		4,567		5,421		—		—		—		—		—		9,988
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		31,584		5,967		6,058										43,609
Grade 1 allowance		30		11		7										48
Grade 2 loan balance		194,607		129,771		2,593										326,971
Grade 2 allowance		472		618		8										1,098
Grade 3 loan balance		507,255		538,629		19,315										1,065,199
Grade 3 allowance		1,377		4,010		65										5,452
Grade 4 loan balance		1,035,542		1,617,994		34,410										2,687,946
Grade 4 allowance		7,862		27,282		275										35,419
Grade 5 (Special Mention) loan balance		33,989		40,545		157										74,691
Grade 5 allowance		889		1,901		4										2,794
Grade 6 (Substandard) loan balance		67,205		77,836		1,851										146,892
Grade 6 allowance		5,013		9,175		127										14,315
Grade 7 (Doubtful) loan balance		33		59		—										92
Grade 7 allowance		3		5		—										8
Consumer loans based on payment status:
Current loan balances								1,511,155		737,797		135,627		494,140		2,878,719
Current loans allowance								12,557		5,040		3,269		2,722		23,588
30 days past due loan balance								13,897		1,930		1,780		11,502		29,109
30 days past due allowance								1,733		575		708		421		3,437
60 days past due loan balance								5,205		766		1,547		4,074		11,592
60 days past due allowance								1,950		531		952		501		3,934
90+ days past due loan balance								3,628		580		2,643		15,193		22,044
90+ days past due allowance								2,320		659		2,169		1,028		6,176
Total loans	$	1,882,076	$	2,462,839	$	64,384	$	1,533,885	$	741,073	$	141,597	$	524,909	$	7,350,763
Total Allowance for Loan Losses	$	20,213	$	48,423	$	486	$	18,560	$	6,805	$	7,098	$	4,672	$	106,257

Asset Quality

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

     The Corporation’s Credit Policy Division manages credit risk by establishing common credit policies for its subsidiaries, participating in approval of their largest loans, conducting reviews of their loan portfolios, providing them with centralized consumer underwriting, collections and loan operations services, and overseeing their loan workouts. Notes 1 (Summary of Significant Accounting Policies) and 4 (Loans Allowance for Loan Losses) in the 2009 Form 10-K provide detailed information regarding the Corporation’s credit policies and practices.

     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.

58

Nonperforming Loans are defined as follows:

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

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

Nonperforming Assets are defined as follows:

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

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

• Other real estate (ORE)acquired through foreclosure in satisfaction of a loan.

	March 31,			December 31,			March 31,
	2010			2009			2009
	(Dollars in thousands)
Nonperforming commercial loans	$	94,798		$	74,033		$	54,070
Other nonaccrual loans:		17,245			17,639			16,134
Total nonperforming loans		112,043			91,672			70,204
Other real estate (“ORE”)		11,277			9,329			6,039
Total nonperforming assets	$	123,320		$	101,001		$	76,243
Loans past due 90 day or more accruing interest	$	21,099		$	35,025		$	18,602
Total nonperforming assets as a percentage of total loans and ORE		1.80	%		1.48	%		1.04	%

     During 2009 and the first quarter 2010 the economic conditions in our markets continued to be challenging. Residential developers and homebuilders have been the most adversely affected, with the significant decrease of buyer resulting from a combination of the restriction of available credit and economic pressure impacting the consumer. Consumers continue to be under pressure due to high debt levels, limited refinance opportunities, increased cost of living and increasing unemployment. These conditions have resulted in increases in bankruptcies as well as charge offs. Commercial nonperforming loans increased/decreased $20.8 million from December 31, 2009 and $40.7 million from March 31, 2009. Criticized loans increased $80.7 million from December 31, 2009, and $138.0 from March 31, 2009.

     In nonperforming assets, other real estate includes $1.0 million of vacant land no longer considered for branch expansion which is not related to loan portfolios.

59

     See Note 1 (Summary of Significant Accounting Policies) of the 2009 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
	March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009
	(Dollars in thousands)
Nonaccrual commercial loans beginning of period	$	74,033		$	63,357		$	48,563		$	54,070		$	40,195
Credit Actions:
New		31,211			34,612			24,491			7,259			22,912
Loan and lease losses		(5,367	)		(5,272	)		(3,886	)		(5,951	)		(1,950	)
Charged down		(3,567	)		(12,710	)		(3,321	)		(4,182	)		(2,603	)
Return to accruing status		(672	)		(478	)		(24	)		(660	)		(3,333	)
Payments		(840	)		(5,476	)		(2,466	)		(1,973	)		(1,151	)
Sales		—			—			—			—			—
Nonaccrual commercial loans end of period	$	94,798		$	74,033		$	63,357		$	48,563		$	54,070

Deposits, Securities Sold Under Agreements to Repurchase and Wholesale Borrowings

     The following ratios and table provide additional information about the change in the mix of customer deposits.

	Quarter Ended					Year Ended					Quarter Ended
	March 31, 2010					December 31, 2009					March 31, 2009
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)
Non-interest DDA	$	2,146,969		—		$	1,910,171		—		$	1,767,885		—
Interest-bearing DDA		687,233		0.09	%		656,367		0.09	%		655,279		0.10	%
Savings and money market		3,709,246		0.83	%		2,886,842		0.81	%		2,638,166		0.83	%
CDs and other time deposits		1,797,348		1.45	%		2,056,208		2.66	%		2,582,788		2.92	%
Total customer deposits		8,340,796		0.69	%		7,509,588		1.05	%		7,644,118		1.28	%
Securities sold under agreements to repurchase		951,927		0.48	%		1,013,167		0.47	%		941,112		0.43	%
Wholesale borrowings		708,414		3.53	%		952,979		2.87	%		1,151,777		2.59	%
Total funds	$	10,001,137				$	9,475,734				$	9,737,007

60

     Total average demand deposits comprised 33.98% of average deposits in the 2010 first quarter compared to 31.70% in the first quarter 2009. Savings accounts, including money market products, made up 44.46% of average deposits in the 2010 first quarter compared to 34.51% in the first quarter 2009. CDs made up 21.55% of average deposits in the first quarter 2010 and 33.79% in the first quarter 2009.

     Deposits balances were elevated by the $395.7 million in deposits assumed as part of the George Washington transaction, and by $1.2 billion in deposits assumed on February 19, 2010 from First Bank. The Corporation received approximately $40.2 million from the FDIC associated with the George Washington transaction and believes that this provides sufficient liquidity to fund the potential at-risk deposit outflows.

     The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was down 119 basis points compared to one year ago, or 2.15% for the quarter ended March 31, 2010.

     The following table summarizes CDs of $100 thousand or more (“Jumbo CDs”) as of March 31, 2010, by time remaining until maturity:

Time until maturity:	Amount
	(In thousands)
Under 3 months	$	175,013
3 to 6 months		142,376
6 to 12 months		240,349
Over 1 year through 3 years		103,904
Over 3 years		32,125
	$	693,767

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 March 31, 2010 totaled $1.2 billion compared to $1.1 billion at December 31, 2009 and $1.1 billion at March 31, 2009. The cash dividend of $0.16 per share paid in the first quarter has an indicated annual rate of $0.64 per share.

Capital Availability

     On March 3, 2010, the Corporation entered into two distribution agency agreements with Credit Suisse Securities (USA) LLC and RBC Capital Markets Corporation (collectively, the “Sales Agents”), pursuant to which the Corporation may, from time to time, offer and sell shares

61

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 the Sales Agents. During the quarter ended March 31, 2010, the Corporation sold 3.9 million shares with an average value of $20.91 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 7.93% at March 31, 2010, compared to 8.89% at December 31, 2009, and 7.60% at March 31, 2009.

     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.

     The George Washington FDIC-assisted transaction, which was accounted for as a business combination, resulted in the recognition of an FDIC indemnification asset, which represents the fair value of estimated future payments by the FDIC to the Corporation for losses on covered assets. The FDIC indemnification asset, as well as covered assets, are risk-weighted at 20% for regulatory capital requirement purposes.

     As of March 31, 2010, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

62

	March 31,				December 31,				March 31,
	2010				2009				2009
	(Dollars in thousands)
Consolidated
Total equity	$	1,155,353	9.38	%	$	1,065,627	10.11	%	$	1,084,269	9.88	%
Common equity		1,155,353	9.38	%		1,065,627	10.11	%		963,647	8.78	%
Tangible common equity (a)		961,749	7.93	%		924,871	8.89	%		823,086	7.60	%
Tier 1 capital (b)		1,002,610	11.75	%		971,013	12.09	%		1,001,901	11.86	%
Total risk-based capital (c)		1,109,453	13.01	%		1,071,682	13.34	%		1,107,571	13.11	%
Leverage (d)		1,002,610	9.03	%		971,013	9.39	%		1,001,901	9.13	%
Bank Only
Total equity	$	974,433	7.92	%	$	946,626	9.00	%	$	792,085	7.23	%
Common equity		974,433	7.92	%		946,626	9.00	%		792,085	7.23	%
Tangible common equity (a)		829,529	6.82	%		806,223	7.77	%		651,524	6.02	%
Tier 1 capital (b)		796,182	9.35	%		826,517	10.31	%		794,697	9.43	%
Total risk-based capital (c)		898,734	10.56	%		922,919	11.51	%		896,531	10.64	%
Leverage (d)		796,182	7.09	%		826,517	8.00	%		794,697	7.26	%

(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.

Market Risk Management

     Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces “market risk.” The Corporation is primarily exposed to interest rate risk as a result of offering a wide array of financial products to its customers.

Interest rate risk management

     Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The Corporation seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The 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

63

these policies, responsibility for measuring and the management of interest rate risk resides in the Corporate Treasury function.

     Interest rate risk on the Corporation’s balance sheets consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from “embedded options” present in the investment portfolio and in many financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Corporation. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings accounts and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates. Each of these types of risks is defined in the discussion of market risk management of the 2009 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 March 31, 2010 and 2009:

	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
March 31, 2010		*		1.99	%		3.41	%		4.22	%
March 31, 2009		*		2.43	%		4.25	%		5.36	%

* 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

64

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 March 31, 2010 and 2009:

	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis		+ 100 basis			+ 200 basis			+ 300 basis
	points		points			points			points
March 31, 2010		*		2.82	%		3.09	%		2.27	%
March 31, 2009		*		2.95	%		5.13	%		2.40	%

* 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.

65

     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. Core deposits comprised approximately 78.45% of total deposits at March 31, 2010. The Corporation’s wholly owned subsidiary, FirstMerit Bank, N.A., received approximately $40.2 million from the FDIC associated with the FDIC-assisted transaction involving George Washington. The Corporation believes these funds along with its other sources of liquidity provides sufficient liquidity to fund potential at-risk deposit outflows from this institution.

     The Corporation also has available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $1.2 million at March 31, 2010.

     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.

66

  ��  Funding Trends for the Quarter —During the three months ended March 31, 2010, lower cost core deposits increased by $852.4 million from the previous quarter. In aggregate, deposits increased $1.9 billion. Securities sold under agreements to repurchase decreased $100.0 million from December 31, 2009. Wholesale borrowings decreased $62.4 million from the end of 2009 to March 31, 2010. The Corporation’s loan to deposit ratio decreased to 78.55% at March 31, 2010 from 92.14% at December 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 March 31, 2010, FirstMerit Bank did not pay dividends to FirstMerit Corporation. As of March 31, 2010, FirstMerit Bank had an additional $93.1 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. 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. 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 and a warrant to purchase 952,260 FirstMerit common shares at an exercise price of $19.69 per share. 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

67

through December 5, 2008. Participation in the TLPG subsequent to December 5, 2008 was optional. The Corporation elected to participate in the TLPG subsequent to December 5, 2008.

     The Transaction Account Guarantee is effective for the Corporation through June 30, 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. On November 12, 2009, the FDIC adopted a final rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate was based on each institution’s total basis point assessment in effect on September 30, 2009, adjusted to assume a 5% annualized deposit growth rate; for the 2011 and 2012 periods the computation is adjusted by an additional three basis points increase in the assessment rate. The three-year prepayment for the Corporation totaled $43.9 million.

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 2009 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

68

Discussion and Analysis of Financial Condition and Results of Operations in the 2009 Form 10-K.

     Purchased loans and related indemnification assets.In accordance with applicable authoritative accounting guidance, all purchased loans and related indemnification assets are recorded at fair value at date of purchase. The initial valuation of these loans and related indemnification asset requires Management to make subjective judgments concerning estimates about how the acquired loans will perform in the future using valuation methods including discounted cash flow analysis and independent third-party appraisals. Factors that may significantly affect the initial valuation include, among others, market-based and industry data related to expected changes in interest rates, assumptions related to probability and severity of credit losses, estimated timing of credit losses including those the foreclosure and liquidation of collateral, expected prepayment rates, required or anticipated loan modifications, unfunded loan commitments, the specific terms and provisions of any loss share agreements, and specific industry and market conditions that may impact discount rates and independent third-party appraisals.

     On an ongoing basis, the accounting for purchased loans and related indemnification assets follows applicable authoritative accounting guidance for purchased non-impaired loans and purchased impaired loans. The amount that the Corporation realizes on these loans and related indemnification assets could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods. The Corporation’s losses on these assets may be mitigated to the extent covered under the specific terms and provisions of any loss share agreements.

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 2009 Form 10-K. There have been no significant changes since December 31, 2009.

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 2009 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

69

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.

70

     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 2009 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 first quarter of the 2010 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 (2)		Paid per Share		or Programs (1)		Plans or Programs
Balance as of December 31, 2009								396,272
January 1, 2010 - January 31, 2010		38,762	$	22.09		—		396,272
February 1, 2010 - February 28, 2010		64,017		21.05		—		396,272
March 1, 2010 - March 31, 2010		12,698		24.16		—		396,272
Balance as of March 31, 2010:		115,477	$	21.73		—		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

71

	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)	Reflects 115,477 common shares purchased as a result of 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

The Corporation held its Annual Meeting of Shareholders on April 21, 2010, for which the Board of Directors solicited proxies.

(1) Directors were elected at the Annual Meeting for terms expiring at the 2011 Annual Meeting of Shareholders, with the following voting results:

					Authority		Broker
	For		Against		Withheld		Non-Votes
Steven H. Baer		64,394,273		*		6,103,010		8,410,770
Karen S. Belden		63,948,707		*		6,548,576		8,410,770
R. Cary Blair		63,259,864		*		7,237,420		8,410,770
John C. Blickle		64,023,421		*		6,473,862		8,410,769
Robert W. Briggs		64,091,003		*		6,406,281		8,410,770
Richard Colella		63,945,635		*		6,551,649		8,410,769
Gina D. France		64,408,180		*		6,089,104		8,410,769
Paul G. Greig		63,477,462		*		7,019,821		8,410,770
Terry L. Haines		63,341,507		*		7,155,777		8,410,769
J. Michael Hohhschwender		63,665,329		*		6,831,955		8,410,769
Clifford J. Isroff		63,093,621		*		7,403,663		8,410,769
Philip A. Lloyd II		62,142,643		*		8,354,640		8,410,770

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

In addition to the election of Directors, the following matters were voted on at the Annual Meeting of Shareholders:

72

(2) Ratification of the selection of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2010:

				Authority		Broker
For		Against		Withheld		Non-Votes
	76,673,409		1,738,647		495,991		—
(3) Approval of amendments to Article FOURTH and Annex A of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation which contain the express terms and standard provision of the Corporation’s previously issued shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A:
				Authority		Broker
For		Against		Withheld		Non-Votes
	76,896,616		1,129,944		881,479		15
(4) Approval of the amendments to Article III, Section 2 of FirstMerit Corporation’s Second Amended and Restated Code of Regulations to authorize the Board of Directors to establish the number of directors within a range from nine to fifteen without shareholder approval and to establish the current number of directors at twelve:
				Authority		Broker
For		Against		Withheld		Non-Votes
	70,881,457		7,135,137		891,445		15
(5) Approval of the amendments to Article SEVENTH of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation to include a provision that would allow shareholders to approve, by a majority of the voting poser of the company, any matter that otherwise could require the approval of two-thirds or any other proportion (but not less than all) of the voting poser of the Corporation under Ohio law, and to eliminate the need to obtain shareholder approval for certain smaller business combinations and mergers:
				Authority		Broker
For		Against		Withheld		Non-Votes
	70,853,923		6,985,958		1,068,152		20
(6) Approval of the amendments to Article EIGHTH of FirstMerit Corporation’s Second Amended and Restated Articles of Incorporation to include a provision that would allow shareholders to approve all amendments to the Articles by a majority of the voting power of the Corporation:
				Authority		Broker
For		Against		Withheld		Non-Votes
	75,893,990		2,038,591		975,454		19

73

(7) Approval of the amendments to Article III, Section 4 of FirstMerit Corporation’s Second Amended and Restated Code of Regulations to eliminate the provision requiring good cause for shareholders to remove a director during the term of office for which the director was elected:

				Authority		Broker
For		Against		Withheld		Non-Votes
	76,388,240		1,604,132		915,668		13

ITEM 5. OTHER INFORMATION

None.

74

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits

Exhibit
Number		Description
	2.1	Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of George Washington Savings Bank, Orland Park, Illinois, the Federal Deposit Insurance Corporation and FirstMerit Bank, N.A., dated as of February 19, 2010 (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
	3.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended (filed herewith).
	3.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation, as amended (filed herewith).
	10.1	FirstMerit Corporation 2010 Retention Bonus Plan (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by FirstMerit Corporation on February 22, 2010).
	10.2	Distribution Agency Agreement dated March 3, 2010 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 FirstMerit Corporation on March 3, 2010).
	10.3	Distribution Agency Agreement dated March 3, 2010 between FirstMerit Corporation and RBC Capital Markets Corporation (incorporated by reference from Exhibit 99.2 to the Current Report on Form 8-K filed by FirstMerit Corporation on March 3, 2010).
	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 Certification of Paul G. Greig, Chief Executive Officer of FirstMerit Corporation.
	32.2	Rule 13a-14(b)/Section 906 Certification of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit Corporation.

75

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)

May 10, 2010

76