FirstMerit (FMER) 10-Q 2011 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

COMMISSION FILE NUMBER 0-10161

FIRSTMERIT CORPORATION

(Exact name of registrant as specified in its charter)

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

III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO

44308-1103

(Address of principal executive offices)

(330) 996-6300

(Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

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

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

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

As of October 24, 2011, 109,246,375 shares of common stock, without par value, were outstanding.

FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands) (Unaudited, except December 31, 2010, which is derived from the audited financial statements)	September 30, 2011			December 31, 2010			September 30, 2010
ASSETS
Cash and due from banks	$	202,886		$	157,415		$	180,990
Interest-bearing deposits in banks		116,059			365,698			469,779
Total cash and cash equivalents		318,945			523,113			650,769
Investment securities
Held-to-maturity		92,214			59,962			61,818
Available-for-sale		3,198,046			2,987,040			3,027,436
Other investments		160,793			160,752			160,753
Loans held for sale		39,340			41,340			25,542
Noncovered loans:
Commercial loans		5,018,857			4,527,497			4,344,784
Mortgage loans		397,309			403,843			414,728
Installment loans		1,271,327			1,308,860			1,349,964
Home equity loans		743,377			749,378			760,816
Credit card loans		142,710			149,506			144,734
Leases		57,992			63,004			64,009
Total noncovered loans		7,631,572			7,202,088			7,079,035
Allowance for noncovered loan losses		(109,187	)		(114,690	)		(116,528	)
Net noncovered loans		7,522,385			7,087,398			6,962,507
Covered loans (includes loss share receivable of $220.5 million, $288.6 million and $342.3 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.)		1,647,218			1,976,754			2,156,832
Allowance for covered loan losses		(34,603	)		(13,733	)		(3,437	)
Net covered loans		1,612,615			1,963,021			2,153,395
Net loans		9,135,000			9,050,419			9,115,902
Premises and equipment, net		193,075			197,866			194,757
Goodwill		460,044			460,044			460,044
Intangible assets		8,782			10,411			11,416
Other real estate covered by FDIC loss share		61,890			54,710			53,526
Accrued interest receivable and other assets		1,020,149			589,057			592,123
Total assets	$	14,688,278		$	14,134,714		$	14,354,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	2,971,555		$	2,790,550		$	2,658,458
Demand-interest bearing		967,574			868,404			847,284
Savings and money market accounts		5,513,472			4,811,784			4,557,702
Certificates and other time deposits		1,943,520			2,797,268			3,207,972
Total deposits		11,396,121			11,268,006			11,271,416
Federal funds purchased and securities sold under agreements to repurchase		987,030			777,585			897,755
Wholesale borrowings		248,006			326,007			391,914
Accrued taxes, expenses, and other liabilities		486,467			255,401			275,109
Total liabilities		13,117,624			12,626,999			12,836,194
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		—			—			—
Common stock, without par value: authorized 300,000,000 shares; issued 115,121,731, 115,121,731 and 115,121,731 at September 30, 2011, December 31, 2010 and September 30, 2010, respectively		127,937			127,937			127,937
Capital surplus		478,738			485,567			484,770
Accumulated other comprehensive loss		(4,654	)		(26,103	)		(4,915	)
Retained earnings		1,118,027			1,080,900			1,071,147
Treasury stock, at cost, 5,874,748, 6,305,218 and 6,318,452 shares at September 30, 2011, December 31, 2010 and September 30, 2010, respectively		(149,394	)		(160,586	)		(161,047	)
Total shareholders’ equity		1,570,654			1,507,715			1,517,892
Total liabilities and shareholders’ equity	$	14,688,278		$	14,134,714		$	14,354,086

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)	Quarters ended September 30,					Nine months ended September 30,
(Dollars in thousands except per share data)	2011		2010			2011		2010
Interest income:
Interest and fees on loans, including held for sale	$	108,417	$	118,543		$	330,877	$	312,112
Investment securities
Taxable		21,949		23,560			65,610		74,032
Tax-exempt		3,189		3,234			9,521		9,861
Total investment securities interest		25,138		26,794			75,131		83,893
Total interest income		133,555		145,337			406,008		396,005
Interest expense:
Interest on deposits:
Demand-interest bearing		218		252			579		553
Savings and money market accounts		6,929		8,294			22,172		23,768
Certificates and other time deposits		4,370		9,588			16,803		25,504
Interest on securities sold under agreements to repurchase		977		986			2,832		3,517
Interest on wholesale borrowings		1,669		2,724			4,963		12,009
Total interest expense		14,163		21,844			47,349		65,351
Net interest income		119,392		123,493			358,659		330,654
Provision for loan losses noncovered		14,604		18,108			41,760		63,967
Provision for loan losses covered		4,768		593			17,580		860
Net interest income after provision for loan losses		100,020		104,792			299,319		265,827
Other income:
Trust department income		5,607		5,469			16,983		16,324
Service charges on deposits		17,838		16,859			48,460		49,962
Credit card fees		13,640		12,532			39,357		36,332
ATM and other service fees		3,801		2,996			9,781		8,349
Bank owned life insurance income		3,182		3,219			11,439		11,757
Investment services and insurance		1,965		2,688			6,384		7,151
Investment securities gains, net		4,402		58			5,291		709
Loan sales and servicing income		1,036		4,006			8,657		10,218
Gain on George Washington acquisition		—		—			—		1,041
Other operating income		9,301		7,308			18,667		16,401
Total other income		60,772		55,135			165,019		158,244
Other expenses:
Salaries, wages, pension and employee benefits		61,232		58,930			177,815		158,985
Net occupancy expense		8,464		8,608			25,144		23,428
Equipment expense		7,073		7,330			20,725		20,115
Stationery, supplies and postage		2,517		2,865			7,972		8,254
Bankcard, loan processing and other costs		8,449		8,281			24,278		23,762
Professional services		5,732		8,544			17,466		21,626
Amortization of intangibles		543		1,006			1,629		1,909
FDIC expense		3,240		5,267			12,187		13,448
Other operating expense		18,707		19,839			53,254		48,879
Total other expenses		115,957		120,670			340,470		320,406
Income before income tax expense		44,835		39,257			123,868		103,665
Income tax expense		13,098		10,261			34,808		27,786
Net income	$	31,737	$	28,996		$	89,060	$	75,879
Other comprehensive income, net of taxes
Unrealized securities’ gains (losses), net of taxes	$	7,353	$	(360	)	$	24,889	$	21,005
Less: reclassification adjustment for securities’ gains (losses) realized in income, net of taxes		2,862		38			3,440		461
Total other comprehensive gain (loss), net of taxes		4,491		(398	)		21,449		20,544
Comprehensive income	$	36,228	$	28,598		$	110,509	$	96,423
Net income applicable to common shares	$	31,737	$	28,996		$	89,060	$	75,879
Net income used in diluted EPS calculation	$	31,737	$	28,996		$	89,060	$	75,879
Weighted average number of common shares outstanding - basic		109,245		108,793			109,052		98,588
Weighted average number of common shares outstanding - diluted		109,246		108,794			109,053		98,590
Basic earnings per share	$	0.29	$	0.27		$	0.82	$	0.77
Diluted earnings per share	$	0.29	$	0.27		$	0.82	$	0.77
Dividend per share	$	0.16	$	0.16		$	0.48	$	0.48

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)	Preferred Stock		Common Stock		Common Stock Warrant		Capital Surplus			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders’ Equity
(In thousands)
Balance at December 31, 2009	$	—	$	127,937	$	—	$	88,573		$	(25,459	)	$	1,043,625		$	(169,049	)	$	1,065,627
Net income		—		—		—		—			—			75,879			—			75,879
Cash dividends - common stock ($0.16 per share)		—		—		—		—			—			(48,357	)		—			(48,357	)
Options exercised (48,365 shares)		—		—		—		(330	)		—			—			1,156			826
Nonvested (restricted) shares granted (428,755 shares)		—		—		—		(10,425	)		—			—			10,425			—
Restricted stock activity (165,577 shares)		—		—		—		1,075			—			—			(3,657	)		(2,582	)
Deferred compensation trust (892 decrease in shares)		—		—		—		(78	)		—			—			78			—
Share-based compensation		—		—		—		5,937			—			—			—			5,937
Issuance of common stock (21,487,860 shares)		—		—		—		400,018			—			—			—			400,018
Net unrealized gains on investment securities, net of taxes		—		—		—		—			20,544			—			—			20,544
Balance at September 30, 2010	$	—	$	127,937	$	—	$	484,770		$	(4,915	)	$	1,071,147		$	(161,047	)	$	1,517,892
Balance at December 31, 2010	$	—	$	127,937	$	—	$	485,567		$	(26,103	)	$	1,080,900		$	(160,586	)	$	1,507,715
Net income		—		—		—		—			—			89,060			—			89,060
Cash dividends - common stock ($0.48 per share)		—		—		—		—			—			(51,933	)		—			(51,933	)
Nonvested (restricted) shares granted (576,138 shares)		—		—		—		(13,985	)		—			—			13,985			—
Restricted stock activity (145,668 shares)		—		—		—		494			—			—			(2,751	)		(2,257	)
Deferred compensation trust (10,182 increase in shares)		—		—		—		42			—			—			(42	)		—
Share-based compensation		—		—		—		6,620			—			—			—			6,620
Net unrealized gains on investment securities, net of taxes		—		—		—		—			21,449			—			—			21,449
Balance at September 30, 2011	$	—	$	127,937	$	—	$	478,738		$	(4,654	)	$	1,118,027		$	(149,394	)	$	1,570,654

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

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FIRSTMERIT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30,
(Unaudited)	2011			2010
(Dollars in thousands)
Operating Activities
Net income	$	89,060		$	75,879
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		59,340			64,827
Depreciation and amortization		17,016			16,226
Benefit attributable to FDIC loss share		31,078			9,284
Accretion of acquired loans		(91,872	)		(65,462	)
Accretion income for lease financing		(1,928	)		(1,908	)
Amortization and accretion of securities, net
Available for sale		11,129			8,611
Other		25			—
Gain on acquisition		—			(1,041	)
Gain on sales and calls of investment securities, net
Available for sale		(5,291	)		(709	)
Originations of loans held for sale		(322,760	)		(357,489	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets		329,967			353,710
Gains on sales of loans, net		(5,208	)		(4,935	)
Amortization of intangible assets		1,629			1,909
Net change in assets and liabilities
Interest receivable		(195	)		(2,565	)
Interest payable		(1,934	)		(2,870	)
Prepaid assets		(5,989	)		26,280
Bank owned life insurance		(7,378	)		(7,423	)
Employee pension liability		(2,287	)		1,706
Other assets and liabilities		(1,501	)		(13,647	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		92,901			100,383
Investing Activities
Proceeds from sales of securities
Available for sale		182,781			545,337
Proceeds from prepayments, calls, and maturities
Available for sale		778,697			659,817
Held to maturity		18,901			24,171
Other		12			38
Purchases of securities
Available for sale		(1,338,279	)		(1,107,581	)
Held to maturity		(51,151	)		(35,305	)
Other		(79	)		—
Net decrease (increase) in loans and leases		(81,096	)		274,751
Purchases of premises and equipment		(12,225	)		(43,593	)
Net cash acquired from acquisitions		—			1,000,807
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES		(502,439	)		1,318,442
Financing Activities
Net increase in demand accounts		280,175			220,533
Net increase in savings and money market accounts		701,689			315,451
Net decrease in certificates and other time deposits		(853,748	)		(645,152	)
Net increase (decrease) in securities sold under agreements to repurchase		209,445			(821,635	)
Net decrease in wholesale borrowings		(78,001	)		(348,191	)
Net proceeds from issuance of common stock		—			400,018
Cash dividends - common		(51,933	)		(48,357	)
Restricted stock activity		(2,257	)		(2,582	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		—			826
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		205,370			(929,089	)
Increase (decrease) in cash and cash equivalents		(204,168	)		489,736
Cash and cash equivalents at beginning of period		523,113			161,033
Cash and cash equivalents at end of period	$	318,945		$	650,769
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest, net of amounts capitalized	$	43,055		$	45,746
Federal income taxes	$	7,915		$	21,108

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

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FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2011(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 “Bank”). The Parent Company’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Risk Management, Inc., 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 in the United States of America (“U.S. GAAP”) and to general practices within the financial services industry.

The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all adjustments (consisting only of normally recurring adjustments) that are, in the opinion of FirstMerit Corporation’s Management (“Management”), necessary for a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements of the Corporation as of September 30, 2011 and 2010 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”). Certain reclassifications of prior year’s amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity.

There have been no significant changes to the Corporation’s accounting policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010.

In preparing these accompanying unaudited interim consolidated financial statements, subsequent events were evaluated through the time the consolidated financial statements were issued. No material subsequent events have occurred requiring recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

Recently Adopted and Issued Accounting Standards -

FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements.The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06 to amend ASC 820,Fair Value Measurement and Disclosures (“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 gross purchases, sales, issuances and settlements. Except for the requirement to disclose purchases, sales, issuances and

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settlements in the reconciliation of recurring Level 3 measurements on a gross basis, all the amendments to ASC 820 made by ASU 2010-06 were effective for the Corporation on January 1, 2010. The requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 measurements was effective for the Corporation as of January 1, 2011. All required disclosures are incorporated into Note 11 (Fair Value Measurement).

FASB ASU 2010-20,Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.In July 2010, the FASB issued ASU 2010-20, which requires new qualitative and quantitative disclosures on the allowance for credit losses, credit quality, impaired loans, modifications and nonaccrual and past due financing receivables. The guidance requires that an entity provide disclosures facilitating financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables (i.e., loans), how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. These required disclosures are to be presented on a disaggregated basis at the portfolio segment and the class of financing receivables level. As it relates to disclosures as of the end of a reporting period, ASU 2010-20 was effective for the Corporation as of December 31, 2010. Disclosures that relate to activity during a reporting period were required for the Corporation in the period beginning January 1, 2011 and are incorporated into Note 4 (Loans) and Note 5 (Allowance for Loan Losses). In January 2011, the FASB temporarily deferred the effective date for disclosures about troubled debt restructurings under ASU 2010-20. See ASU 2011-2 below which requires disclosures about troubled debt restructurings under ASU 2010-20 on a prospective basis beginning in the quarter ended September 30, 2011.

FASB ASU 2010-28,When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. In December 2010, the FASB issued ASU 2010-28, which modifies Step 1 of the goodwill impairment test under ASC 350,Intangibles-Goodwill and Other(“ASC 350”), for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors (as defined in ASC 350) indicating that an impairment may exist. This guidance was effective for the Corporation as of January 1, 2011. The adoption of ASU 2010-28 did not have an impact on the Corporation’s consolidated financial statements.

FASB ASU 2010-29,Disclosure of Supplementary Pro Forma Information for Business Combinations.In December 2010, the FASB issued ASU 2010-29, which clarifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective for the Corporation prospectively for business combinations for which the acquisition date is on or after the January 1, 2011. The Corporation has had no acquisitions subsequent to January 1, 2011.

FASB ASU 2011-02,A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. In April 2011, the FASB issued ASU 2011-02, which provides additional guidance to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this update were effective for the Corporation beginning in the quarter ended September 30, 2011 and were to be applied retrospectively to January 1, 2011. The adoption of ASU 2011-02 did not have a material impact on the Corporation’s consolidated financial statements. In addition, the modification disclosures described in ASU 2010-20, which were subsequently deferred by ASU 2011-01,

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Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings, are effective on a prospective basis beginning in the quarter ended September 30, 2011. All required disclosures are incorporated into Note 5 (Allowance for Loan Losses).

FASB ASU 2011-03,Reconsideration of Effective Control for Repurchase Agreements.In April 2011, the FASB issued ASU 2011-03, which removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 is effective prospectively for all transactions or modifications of existing transactions that occur on or after January 1, 2012. The Corporation has not completed evaluating the impact of ASU 2011-03 on its consolidated financial statements.

FASB ASU 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.In May 2011, the FASB issued ASU 2011-04. The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments in this update to result in a change in the application of the requirements in ASC 820. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective for the Corporation on a prospective basis beginning in the quarter ended March 31, 2012. The Corporation has not completed evaluating the impact of ASU 2011-04 on its consolidated financial statements.

FASB ASU 2011-05,Presentation of Comprehensive Income.In June 2011, the FASB issued ASU 2011-05, which provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This update is effective on a retrospective basis beginning in the quarter ended March 31, 2012. As the Corporation currently reports comprehensive income in a single continuous statement with all of the components required by ASU 2011-05, the adoption of this guidance will not have an impact on its consolidated financial statements.

2. Business Combinations

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

8

acquisition was accounted for under the acquisition method in accordance with ASC 805,Business Combinations (“ASC 805”).

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The Bank received cash of $832.5 million to assume the net liabilities.

	Acquired Book Value		Fair Value Adjustments			As Recorded by 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 date of acquisition. The difference between the fair value and the outstanding principal balance of the purchased loans is being accreted to interest income over the remaining term of the loans in accordance with ASC 310,Receivables (“ASC 310”).

Additional information can be found in Note 4 (Loans) and Note 6 (Goodwill and Intangible Assets).

George Washington Savings Bank – FDIC Assisted Acquisition

On February 19, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the Federal Deposit Insurance Corporation (“FDIC”), as receiver of George Washington Savings Bank (“George Washington”), the subsidiary of George Washington Savings Bancorp, to acquire certain assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of George Washington, a full service Illinois-chartered savings bank headquartered in Orland Park, Illinois. The Bank received a cash payment from the FDIC of approximately $40.2 million to assume the net liabilities.

The FDIC granted the Bank the option to purchase at appraised value the premises, furniture, fixtures and equipment of George Washington and assume the leases associated with these branches. The Bank exercised its option during the second quarter of 2010 and purchased three of the former George Washington branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $4.3 million.

The loans and other real estate (collectively referred to as “Covered Assets”) acquired are covered by a Loss Share Agreement between the Bank and the FDIC which affords the Bank significant protection against future losses. The acquired loans covered under the Loss Share Agreements with the FDIC, including the amounts of expected reimbursements from the FDIC under these agreements, are reported in loans and are

9

referred to as “Covered Loans”. New loans made after the date of the transaction are not covered by the provisions of the Loss Share Agreements. The Bank acquired other assets that are not covered by the Loss Share Agreements, including investment securities purchased at fair market value and other tangible assets.

Pursuant to the terms of the Loss Share 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. Under the Loss Share Agreements, 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. The Loss Share Agreements applicable to single family residential mortgage loans provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The Loss Share Agreements applicable to commercial loans provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years.

The reimbursable losses from the FDIC are based on the pre-acquisition book value of the Covered Assets, as determined by the FDIC at the date of the transaction, the contractual balance of acquired unfunded commitments, and certain future net direct costs incurred in the collection and settlement process. The amount that the Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the Covered Assets in future periods.

The purchased assets and liabilities assumed were recorded at their estimated fair values on the date of acquisition. At the date of the transaction, the estimated fair value of the Covered Loans was $177.8 million and the expected reimbursement for losses to be incurred by the Bank on these Covered Loans was $88.7 million. At the date of the transaction, the estimated fair value of the covered other real estate was $11.5 million and the expected reimbursement for losses to be incurred by the Bank on this covered other real estate was $11.3 million. The estimated fair value of assets acquired, intangible assets and the cash payment received from the FDIC exceeded the estimated fair value of the liabilities assumed, resulting in a bargain purchase gain of $1.0 million or $0.7 million net of tax. These fair value estimates reflect the additional information that the Corporation obtained during the quarters ended June 30, 2010 and September 30, 2010 which resulted in changes to certain fair value estimates made as of the acquisition date. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously recorded results have changed. After considering this additional information, the estimated fair value of the Covered Loans increased by $6.3 million, the FDIC loss share receivable on the Covered Loans decreased by $7.5 million, and other liabilities increased $5.2 million as of February 19, 2010 from that originally reported in the quarter ended March 31, 2010. These revised estimates resulted in a decrease of $4.0 million to the bargain purchase gain from that originally reported in the quarter ended March 31, 2010, which is included in noninterest income in the consolidated statements of income and comprehensive income for the nine months ended September 30, 2010.

In accordance with the Loss Share Agreements, on April 14, 2020, (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold ($172.0 million) less (2) the sum of (A) 25% of the asset discount ($47.0 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). For purposes of the above calculation, cumulative shared-loss payments means (i) the aggregate of all of the payments made or payable to the Bank under the loss sharing agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the sum of the Period Servicing Amounts (as defined in the

10

Loss Share Agreements) for every consecutive twelve-month period prior to and ending on the George Washington True-Up Measurement Date. As of the date of the acquisition, the true-up liability was estimated to be $5.2 million and was recorded in accrued taxes, expenses and other liabilities on the consolidated balance sheets. The fair value of the true-up liability as of September 30, 2011 was $4.6 million. Additional information can be found in Note 11 (Fair Value Measurement).

Due to the significant fair value adjustments recorded, as well as the nature of the Loss Share Agreements in place, George Washington’s historical results are not believed to be relevant to the Corporation’s results, and thus no pro forma information is presented.

The acquired assets and liabilities, as well as the adjustments to record the assets and liabilities at fair value, are presented in the following table.

	As Recorded by FDIC		Fair Value Adjustments			As Recorded by FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	57,984	$	—		$	57,984
Investment securities		15,410		—			15,410
Covered loans
Commercial loans		254,492		(117,879	)		136,613
Mortgage loans		27,218		(2,860	)		24,358
Installment loans		24,078		(7,298	)		16,780
Total covered loans		305,788		(128,037	)		177,751
Loss share receivable - loans		—		88,694			88,694
Total covered loans and loss share receivable		305,788		(39,343	)		266,445
Core deposit intangible		—		962			962
Covered other real estate		19,021		(7,561	)		11,460
Loss share receivable-other real estate		—		11,339			11,339
Other assets		5,680		—			5,680
Total assets acquired	$	403,883	$	(34,603	)	$	369,280
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		5,191			7,760
Total liabilities assumed	$	398,303	$	10,112		$	408,415

Midwest Bank and Trust Company – FDIC Assisted Acquisition

On May 14, 2010, the Bank entered into a purchase and assumption agreement with a loss share arrangement with the FDIC, as receiver of Midwest Bank and Trust Company (“Midwest”), a wholly owned subsidiary of Midwest Banc Holdings, Inc., to acquire substantially all of the loans and certain other assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of Midwest, a full-service commercial bank located in the greater Chicago, Illinois area. The Bank made a cash payment to the FDIC of approximately $227.5 million to assume the net assets.

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The FDIC granted the Bank the option to purchase at appraised value the premises, furniture, fixtures and equipment of Midwest and assume the leases associated with these branches. The Bank exercised its option during the third quarter of 2010 and purchased ten of the former Midwest branches, including the furniture, fixtures and equipment within these branches, for a combined purchase price of $25.1 million.

The loans and other real estate acquired are covered by a loss share agreement between the Bank and the FDIC which affords the Bank significant protection against future losses. New loans made after the date of the transaction are not covered by the provisions of the loss sharing agreements. The Bank acquired other 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 Share Agreements, the FDIC’s obligation to reimburse the Bank for losses with respect to Covered Assets begins with the first dollar of loss incurred. The FDIC will reimburse the Bank for 80% of losses with respect to Covered Assets. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC has reimbursed the Bank. The Loss Share Agreement 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 Share Agreement applicable to Covered Assets other than single-family residential mortgage loans provides for FDIC loss sharing for five years and the Bank reimbursement to the FDIC for eight years.

The reimbursable losses from the FDIC are based on the pre-acquisition book value of the Covered Assets, as determined by the FDIC at the date of the transaction, the contractual balance of acquired unfunded commitments, and certain future net direct costs incurred in the collection and settlement process. The amount that the Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the Covered Assets in future periods.

The acquisition of the net assets of Midwest constituted a business combination and, accordingly, were recorded at their estimated fair values on the date of acquisition. At the date of the transaction, the estimated fair value of the Covered Loans was $1.8 billion and the expected reimbursement for losses to be incurred by the Bank on the acquired loans was $260.7 million. At the date of the transaction, the estimated fair value of the covered other real estate was $26.2 million and the expected reimbursement for losses to be incurred by the Bank on this covered other real estate was $2.2 million. The estimated fair value of the liabilities assumed and cash payment made to the FDIC exceeded the revised fair value of assets acquired, resulting in recognition of goodwill of $272.1 million. These estimated fair values reflect the additional information that the Corporation obtained during the quarters ended September 30, 2010, December 31, 2010 and March 31, 2011 which resulted in changes to certain fair value estimates made as of the acquisition date. Material adjustments to acquisition date estimated fair values are recorded in the period in which the acquisition occurred and, as a result, previously recorded results have changed. After considering this additional information, the estimated fair value of the Covered Loans decreased by $39.4 million, the FDIC loss share receivable on the Covered Loans increased by $23.9 million, accrued interest increased by $5.4 million, other assets increased by $20.6 million and other liabilities decreased by $2.3 million as of May 14, 2010 from that originally reported in the quarter ended June 30, 2010. These revised estimates resulted in a decrease of goodwill by $5.6 million from that originally reported in the quarter ended June 30, 2010 to $272.1 million, which was recognized in the quarter ended June 30, 2010 and which is reflected in the September 30, 2011 consolidated balance sheet.

In accordance with the Loss Share Agreements, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the

12

intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $20 million), plus (B) 25% of the Cumulative Shared-Loss Payments (as defined below) plus (C) the Cumulative Servicing Amount (as defined below). For the purposes of the above calculation, Cumulative Shared-Loss Payments means: (i) the aggregate of all of the payments made or payable to FirstMerit Bank; minus (ii) the aggregate of all of the payments made or payable to the FDIC. Cumulative Servicing Amount means the Period Servicing Amounts (as defined in the loss sharing agreements) for every consecutive twelve-month period prior to and ending on the Midwest True-Up Measurement Date in respect of each of the loss share agreements during which the loss sharing provisions of the applicable loss share agreement is in effect. As of the date of acquisition, the true-up liability was estimated to be $6.3 million and was recorded in accrued taxes, expenses and other liabilities on the consolidated balance sheets. The fair value of the true-up liability as of September 30, 2011 was $7.3 million. Additional information can be found in Note 11 (Fair Value Measurement).

Additional information can be found in Note 4 (Loans) and Note 6 (Goodwill and Intangible Assets).

Due to the significant fair value adjustments recorded, as well as the nature of the Loss Share Agreements in place, Midwest’s historical results are not believed to be relevant to the Corporation’s results, and thus no pro forma information is presented.

The acquired assets and liabilities, as well as the adjustments to record the assets and liabilities at fair value, are presented in the following table.

	As Recorded by FDIC			Fair Value Adjustments			As Recorded by FirstMerit Bank, N.A.
Assets
Cash and due from banks	$	279,352		$	—		$	279,352
Investment securities		565,210			(977	)		564,233
Commercial loans		1,840,001			(317,526	)		1,522,475
Consumer loans		312,131			(53,742	)		258,389
Total covered loans		2,152,132			(371,268	)		1,780,864
Allowance for loan losses		(5,465	)		5,465			—
Accrued interest		5,436			(5,436	)		—
Loss share receivable - loans		—			260,730			260,730
Total covered loans and loss share receivable		2,152,103			(110,509	)		2,041,594
Core deposit intangible		—			7,433			7,433
Covered other real estate		27,320			(1,165	)		26,155
Loss share receivable - other real estate					2,196			2,196
Goodwill		—			272,099			272,099
Other assets		9,838			19,054			28,892
Total assets acquired	$	3,033,823		$	188,131		$	3,221,954
Liabilities
Deposits
Savings deposits	$	748,681		$	—		$	748,681
Time deposits		1,499,913			9,125			1,509,038
Total deposits		2,248,594			9,125			2,257,719
Borrowings		639,804			83,241			723,045
FDIC liability		—			6,256			6,256
Accrued expenses and other liabilities		7,395			—			7,395
Total liabilities assumed	$	2,895,793		$	98,622		$	2,994,415

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3. Investment Securities

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

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	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale
Debt Securities
U.S. government agency debentures		203,148		590		(20	)		203,718
U.S. States and political subdivisions		298,140		16,426		(125	)		314,441
Residential mortgage-backed securities:
U.S. government agencies		1,419,808		61,416		(2	)		1,481,222
Residential collateralized mortgage-backed securities:
U.S. government agencies		1,080,627		23,327		(45	)		1,103,909
Non-agency		44,715		139		—			44,854
Corporate debt securities		61,474		—		(15,287	)		46,187
Total debt securities		3,107,912		101,898		(15,479	)		3,194,331
Marketable equity securities		3,715		—		—			3,715
Total securities available for sale	$	3,111,627	$	101,898	$	(15,479	)	$	3,198,046
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	92,214	$	—	$	—		$	92,214
Total securities held to maturity	$	92,214	$	—	$	—		$	92,214

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale
Debt Securities
U.S. government agency debentures	$	399,122	$	703	$	(194	)	$	399,631
U.S. States and political subdivisions		296,327		3,537		(2,119	)		297,745
Residential mortgage-backed securities:
U.S. government agencies		1,343,021		52,230		(547	)		1,394,704
Residential collateralized mortgage-backed securities:
U.S. government agencies		814,774		18,223		(2,306	)		830,691
Non-agency		15,018		—		—			15,018
Corporate debt securities		61,435		—		(16,106	)		45,329
Total debt securities		2,929,697		74,693		(21,272	)		2,983,118
Marketable equity securities		3,922		—		—			3,922
Total securities available for sale	$	2,933,619	$	74,693	$	(21,272	)	$	2,987,040
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	59,962	$	—	$	—		$	59,962
Total securities held to maturity	$	59,962	$	—	$	—		$	59,962

	September 30, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale
Debt Securities
U.S. government agency debentures		379,876		1,089		(43	)		380,922
U.S. States and political subdivisions		281,769		13,394		(15	)		295,148
Residential mortgage-backed securities:
U.S. government agencies		1,424,027		62,507		(71	)		1,486,463
Residential collateralized mortgage-backed securities:
U.S. government agencies		789,655		25,464		(55	)		815,064
Non-agency		19		—		—			19
Corporate debt securities		61,423		—		(15,533	)		45,890
Total debt securities		2,936,769		102,454		(15,717	)		3,023,506
Marketable equity securities		3,930		—		—			3,930
Total securities available for sale	$	2,940,699	$	102,454	$	(15,717	)	$	3,027,436
Securities held to maturity
Debt Securities
U.S. States and political subdivisions	$	61,818	$	—	$	—		$	61,818
Total securities held to maturity	$	61,818	$	—	$	—		$	61,818

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

	September 30, 2011		December 31, 2010		September 30, 2010
FRB stock	$	20,804	$	20,725	$	20,714
FHLB stock		139,398		139,398		139,398
Other		591		629		641
Total other investments	$	160,793	$	160,752	$	160,753

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 September 30, 2011, securities totaling $2.2 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.

	September 30, 2011
	Less than 12 months							12 months or longer							Total
	Fair Value		Unrealized Losses			Number of Impaired Securities		Fair Value		Unrealized Losses			Number of Impaired Securities		Fair Value		Unrealized Losses
Debt Securities
U.S. government agency debentures	$	15,032	$	(20	)		1	$	—	$	—			—	$	15,032	$	(20	)
U.S. States and political subdivisions		16,180		(102	)		18		648		(23	)		1		16,828		(125	)
Residential mortgage-backed securities:
U.S. government agencies		—		—			—		174		(2	)		2		174		(2	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		21,505		(45	)		3		—		—			—		21,505		(45	)
Corporate debt securities		—		—			—		46,187		(15,287	)		8		46,187		(15,287	)
Total temporarily impaired securities	$	52,717	$	(167	)		22	$	47,009	$	(15,312	)		11	$	99,726	$	(15,479	)

16

	December 31, 2010
	Less than 12 months							12 months or longer							Total
	Fair Value		Unrealized Losses			Number of Impaired Securities		Fair Value		Unrealized Losses			Number of Impaired Securities		Fair Value		Unrealized Losses
Debt Securities
U.S. government agency debentures	$	109,238	$	(194	)		8	$	—	$	—			—	$	109,238	$	(194	)
U.S. States and political subdivisions		105,530		(2,095	)		164		665		(24	)		1		106,195		(2,119	)
Residential mortgage-backed securities:
U.S. government agencies		67,474		(544	)		7		195		(3	)		1		67,669		(547	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		188,264		(2,306	)		17		—		—			—		188,264		(2,306	)
Non-agency		—		—			—		—		—			—		—		—
Corporate debt securities		—		—			—		45,329		(16,106	)		8		45,329		(16,106	)
Total temporarily impaired securities	$	470,506	$	(5,139	)		196	$	46,189	$	(16,133	)		10	$	516,695	$	(21,272	)

	September 30, 2010
	Less than 12 months							12 months or longer								Total
	Fair Value		Unrealized Losses			Number of Impaired Securities		Fair Value		Unrealized Losses			Number of Impaired Securities			Fair Value		Unrealized Losses
Debt Securities
U.S. government agency debentures	$	48,861	$	(43	)		4	$	—	$	—			—		$	48,861	$	(43	)
U.S. States and political subdivisions		—		—			—		680		(15	)		1			680		(15	)
Residential mortgage-backed securities:
U.S. government agencies		28,168		(68	)		3		218		(3	)		1			28,386		(71	)
Residential collateralized mortgage-backed securities:
U.S. government agencies		35,350		(55	)		3		—		—			—			35,350		(55	)
Corporate debt securities		—		—			—		45,890		(15,533	)		8			45,890		(15,533	)
Total temporarily impaired securities	$	112,379	$	(166	)		10	$	46,788	$	(15,551	)		10	��	$	159,167	$	(15,717	)

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

17

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

As of September 30, 2011, 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 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 OTTI at September 30, 2011 and has recognized the total amount of the impairment in other comprehensive income, net of tax.

Realized Gains and Losses

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

	Quarter ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Proceeds	$	179,133		$	45,331	$	182,781		$	545,337
Realized gains	$	4,473		$	58	$	5,418		$	1,660
Realized losses		(71	)		—		(127	)		(951	)
Net securities gains	$	4,402		$	58	$	5,291		$	709

Contractual Maturity of Debt Securities

The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of September 30, 2011. 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.

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	U.S. Government agency debentures			U.S. States and political subdivisions obligations			Residential mortgage-backed securities - U.S govt. agency obligations			Residential collateralized mortgage obligations - U.S. govt. agency obligations			Residential collateralized mortgage obligations - non - U.S. govt. agency issued			Corporate debt securities			Total			Weighted Average Yield
Securities Available for Sale
Remaining maturity:
One year or less	$	137,821		$	4,538		$	3,578		$	39,607		$	—		$	—		$	185,544			1.70	%
Over one year through five years		65,897			21,170			1,431,329			1,064,302			30,773			—			2,613,471			2.91	%
Over five years through ten years		—			154,079			46,315			—			14,081			—			214,475			4.58	%
Over ten years		—			134,654			—			—			—			46,187			180,841			4.50	%
Fair Value	$	203,718		$	314,441		$	1,481,222		$	1,103,909		$	44,854		$	46,187		$	3,194,331			3.05	%
Amortized Cost	$	203,148		$	298,140		$	1,419,808		$	1,080,627		$	44,715		$	61,474		$	3,107,912
Weighted-Average Yield		0.68	%		5.68	%		3.39	%		2.52	%		0.70	%		1.03	%		3.05	%
Weighted-Average Maturity		0.7			9.0			3.4			2.5			4.4			16.1			3.7
Securities Held to Maturity
Remaining maturity:
One year or less	$	—		$	36,769		$	—		$	—		$	—		$	—		$	36,769			3.41	%
Over one year through five years		—			14,850			—			—			—			—			14,850			3.54	%
Over five years through ten years		—			5,795			—			—			—			—			5,795			3.54	%
Over ten years		—			34,800			—			—			—			—			34,800			7.28	%
Fair Value	$	—		$	92,214		$	—		$	—		$	—		$	—		$	92,214			4.90	%
Amortized Cost	$	—		$	92,214		$	—		$	—		$	—		$	—		$	92,214
Weighted-Average Yield					4.90	%														4.90	%
Weighted-Average Maturity					6.8															6.8

4. Loans

Total non-covered and covered loans outstanding as of September 30, 2011, December 31, 2010 and September 30, 2010 were as follows:

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	September 30, 2011			December 31, 2010			September 30, 2010
Commercial loans	$	5,018,857		$	4,527,497		$	4,344,784
Mortgage loans		397,309			403,843			414,728
Installment loans		1,271,327			1,308,860			1,349,964
Home equity loans		743,377			749,378			760,816
Credit card loans		142,710			149,506			144,734
Leases		57,992			63,004			64,009
Total non-covered loans (a)		7,631,572			7,202,088			7,079,035
Allowance for noncovered loan losses		(109,187	)		(114,690	)		(116,528	)
Net non-covered loans		7,522,385			7,087,398			6,962,507
Covered loans (b)		1,647,218			1,976,754			2,156,832
Allowance for covered loan losses		(34,603	)		(13,733	)		(3,437	)
Net covered loans		1,612,615			1,963,021			2,153,395
Net loans	$	9,135,000		$	9,050,419		$	9,115,902

(a) Includes acquired, non-covered loans of $178.0 million, $265.5 million, and $303.0 million as of September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

(b) Includes loss share receivable of $220.5 million, $288.6 million, and $342.3 million as of September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

Originated loans are presented net of deferred loan origination fees and costs which amounted to $5.8 million, $3.6 million, and $2.7 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively. Acquired loans, including Covered Loans, are recorded at fair value as of the date of purchase with no allowance for loan loss. As discussed in Note 2 (Business Combinations), the Bank acquired loans with a fair value of $275.6 million on February 19, 2010 in its acquisition of the First Bank branches, and $177.8 million on February 19, 2010 and $1.8 billion on May 14, 2010 in conjunction with the FDIC-assisted acquisitions of George Washington and Midwest, respectively. The loans that were acquired in these FDIC-assisted transactions are covered by Loss Share Agreements which afford the Bank significant loss protection. Loans covered under Loss Share Agreements, including the amounts of expected reimbursements from the FDIC under these agreements, are reported as covered loans in the accompanying consolidated balance sheets.

Acquired Loans

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality(“ASC 310-30”). Acquired 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. Acquired impaired loans are not classified as nonperforming assets at September 30, 2011 as the loans are considered to be performing under ASC 310-30.

All loans acquired in the First Bank acquisition were performing as of the date of acquisition. The difference between the fair value and the outstanding principal balance of the First Bank acquired loans is being accreted to interest income over the remaining term of the loans.

The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions under ASC 310-30 (“Acquired Impaired Loans”) except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance, and which are being accounted for in accordance with ASC 310 (“Acquired Non-Impaired Loans”).Interest income, through accretion of the difference between the carrying amount of the Acquired Impaired Loans and the expected cash flows, is

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recognized on all Acquired Impaired Loans. The difference between the fair value of the Acquired Non-Impaired Loans and their outstanding balances is being accreted to interest income over the remaining period the revolving lines are in effect. The outstanding balance, including contractual principal, interest, fees and penalties, of all covered loans accounted for in accordance with ASC 310-30 was $1.7 billion as of September 30, 2011.

The excess of an Acquired Impaired Loan’s cash flows expected to be collected over the initial investment in the loan is represented by the accretable yield. An Acquired Impaired Loan’s contractually required payments in excess of the amount of its cash flows expected to be collected are represented by its nonaccretable balance. The nonaccretable balance represents expected credit impairment on the loans and is only recognized in income if the payments on the loan exceed the recorded fair value of the loan. The majority of the nonaccretable balance on Acquired Impaired Loans is expected to be received through Loss Share Agreements and is recorded as part of the covered loans in the balance sheet.

Over the life of the Acquired Impaired Loans, the Corporation continues to estimate cash flows expected to be collected, which includes the effects of estimated prepayments. The Corporation assesses impairment of Acquired Impaired Loans at each balance sheet date by comparing the net present value of updated cash flows (discounted by the effective yield calculated at the end of the previous accounting period) to the recorded book value. For any increases in cash flows expected to be collected, the Corporation adjusts the amount of accretable yield recognized on a prospective basis over the Acquired Impaired Loan’s or pool’s remaining life. To the extent impairment exists, an allowance for loan loss is established through a charge to provision for loan loss. See Note 5 (Allowance for Loan Losses) for further information.

Changes in the carrying amount of accretable yield for Acquired Impaired Loans were as follows for the quarters and nine months ended September 30, 2011 and 2010 and the year ended December 31, 2010:

	Three months ended											Year ended						Nine months ended
	September 30, 2011						September 30, 2010					December 31, 2010						September 30, 2011						September 30, 2010
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans		Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield		Carrying Amount of Loans
Balance at beginning of period	$	196,525		$	1,337,921		$	241,927		$	1,738,502	$	—		$	—		$	227,652		$	1,512,817		$	—	$	—
Loans acquired								—			—		260,751			1,794,593			—			—			260,751		1,794,593
Accretion		(31,120	)		31,120			(31,490	)		31,490		(83,782	)		83,782			(101,244	)		101,244			49,396		49,396
Net Reclassifications from non-accretable to accretable		27,160			—			19,717			—		52,253			—			67,118			—			19,083		—
Payments, received, net		—			(114,500	)		—			158,459		—			(365,558	)		—			(359,520	)		—		232,456
Disposals		(1,057	)		—			(725	)		—		(1,570	)		—			(2,018	)		—			1,009		—
Balance at end of period	$	191,508		$	1,254,541		$	229,429		$	1,611,533	$	227,652		$	1,512,817		$	191,508		$	1,254,541		$	229,429	$	1,611,533

Credit Quality Disclosures

The quality of the Corporation’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation’s overall credit risk management process and evaluation of the allowance for credit losses (see Note 5 Allowance for Loan Losses).

Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management’s opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the allowance for loan losses and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans

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is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors.

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

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As of September 30, 2011

Legacy Loans													³ 90 Days Past Due and Accruing
	Days Past Due						Total Past Due		Current		Total Loans				Nonaccrual Loans
	30-59		60-89		³90
Commercial
C&I	$	12,639	$	6,255	$	5,361	$	24,255	$	2,633,735	$	2,657,990	$	123	$	6,096
CRE		5,145		11,030		33,003		49,178		1,907,048		1,956,226		—		39,560
Construction		779		1,719		8,943		11,441		241,137		252,578		—		10,580
Leases		—		—		—		—		57,992		57,992		—		—
Consumer
Installment		9,090		4,225		5,052		18,367		1,249,676		1,268,043		1,125		438
Home Equity Lines		2,474		731		922		4,127		718,494		722,621		922		753
Credit Cards		1,222		701		771		2,694		140,016		142,710		357		614
Residential Mortgages		9,687		2,412		7,648		19,747		375,706		395,453		1,481		6,166
Total	$	41,036	$	27,073	$	61,700	$	129,809	$	7,323,804	$	7,453,613	$	4,008	$	64,207

Acquired Loans (Noncovered)													³ 90 Days Past Due and Accruing
	Days Past Due						Total Past  Due		Current		Total Loans				Nonaccrual Loans
	30-59		60-89		³90
Commercial
C&I	$	448	$	—	$	138	$	586	$	43,682	$	44,268	$	—	$	138
CRE		1,746		1,696		3,284		6,726		101,069		107,795		394		3,558
Consumer
Installment		1		—		—		1		3,283		3,284		—		—
Home Equity Lines		—		37		1		38		20,718		20,756		1		—
Residential Mortgages		78		—		—		78		1,778		1,856		—		—
Total	$	2,273	$	1,733	$	3,423	$	7,429	$	170,530	$	177,959	$	395	$	3,696

Covered Loans (a)														³ 90 Days Past Due and Accruing(b)
	Days Past Due						Total Past Due					Total Loans			Nonaccrual Loans(b)
	30-59		60-89		³90				Current
Commercial
C&I	$	3,913	$	2,108	$	32,491	$	38,512	$	178,882		$	217,394
CRE		17,486		11,963		198,957		228,406		649,812			878,218
Construction		913		1,346		68,016		70,275		29,779			100,054
Consumer
Installment		505		136		42		683		10,455	��		11,138
Home Equity Lines		500		896		979		2,375		143,757			146,132
Residential Mortgages		14,807		1,062		9,364		25,233		48,578			73,811
Total	$	38,124	$	17,511	$	309,849	$	365,484	$	1,061,263		$	1,426,747

(a) Excludes loss share receivable of $220.5 million as of September 30, 2011.

(b) Acquired impaired loans were not classified as nonperforming assets at September 30, 2011 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

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As of December 31, 2010

Legacy Loans							Total Past Due		Current		Total Loans		³ 90 Days Past Due and Accruing		Nonaccrual Loans
	Days Past Due
	30-59		60-89		³90
Commercial
C&I	$	5,280	$	7,592	$	12,553	$	25,425	$	1,960,404	$	1,985,829	$	4,692	$	8,368
CRE		10,801		3,832		58,977		73,610		1,953,710		2,027,320		1,908		65,096
Construction		1,490		1,777		18,639		21,906		255,253		277,159		2,795		16,364
Leases		—		—		—		—		63,004		63,004		—		—
Consumer
Installment		14,486		4,491		7,059		26,036		1,279,307		1,305,343		1,929		3,724
Home Equity Lines		2,500		755		744		3,999		722,351		726,350		744		72
Credit Cards		1,570		975		1,337		3,882		145,624		149,506		371		966
Residential Mortgages		10,574		1,665		14,815		27,054		375,022		402,076		8,768		10,004
Total	$	46,701	$	21,087	$	114,124	$	181,912	$	6,754,675	$	6,936,587	$	21,207	$	104,594

Acquired Loans (Noncovered)							Total Past Due		Current		Total Loans		³ 90 Days Past Due and Accruing		Nonaccrual Loans
	Days Past Due
	30-59		60-89		³90
Commercial
C&I	$	1,939	$	511	$	703	$	3,153	$	92,995	$	96,148	$	703	$	—
CRE		493		16,650		38		17,181		123,860		141,041		38		—
Consumer
Installment		40		16		23		79		3,438		3,517		23		—
Home Equity Lines		105		24		46		175		22,853		23,028		46		—
Residential Mortgages		65		—		—		65		1,702		1,767		—		93
Total	$	2,642	$	17,201	$	810	$	20,653	$	244,848	$	265,501	$	810	$	93

Covered Loans (a)							Total Past Due		Current		Total Loans		³ 90 Days Past Due and Accruing(b)	Nonaccrual Loans(b)
	Days Past Due
	30-59		60-89		³90
Commercial
C&I	$	5,509	$	2,911	$	70,588	$	79,008	$	180,186	$	259,194
CRE		29,241		16,761		208,820		254,822		763,393		1,018,215
Construction		2,179		2,458		83,969		88,606		28,564		117,170
Consumer
Installment		667		493		36		1,196		10,327		11,523
Home Equity Lines		1,476		738		443		2,657		183,277		185,934
Residential Mortgages		14,975		3,625		12,320		30,920		65,193		96,113
Total	$	54,047	$	26,986	$	376,176	$	457,209	$	1,230,940	$	1,688,149

(a) Excludes loss share receivable of $288.6 million as of December 31, 2010.

(b) Acquired impaired loans were not classified as nonperforming assets at December 31, 2010 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

At September 30, 2010, the investment in nonaccrual (non-covered) loans was $105.0 million, and loans past due 90 days or more and accruing interest was $36.9 million.

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

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

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

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

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

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

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

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

25

As of September 30, 2011

Legacy Loans
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	48,173	$	11,299	$	1,429	$	—
Grade 2		100,058		3,843		620		—
Grade 3		487,017		245,756		18,067		4,219
Grade 4		1,930,074		1,490,214		209,307		53,771
Grade 5		49,251		73,815		4,851		—
Grade 6		43,417		130,584		18,304		2
Grade 7		—		715		—		—
Grade 8		—		—		—		—
	$	2,657,990	$	1,956,226	$	252,578	$	57,992

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	1,249,676	$	718,494	$	140,016	$	375,706
30-59 Days Past Due		9,090		2,474		1,222		9,687
60-89 Days Past Due		4,225		731		701		2,412
³ 90 Days Past Due		5,052		922		771		7,648
	$	1,268,043	$	722,621	$	142,710	$	395,453

Acquired Loans (Noncovered)
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		3		1,968		—		—
Grade 4		43,250		98,668		—		—
Grade 5		160		—		—		—
Grade 6		855		6,491		—		—
Grade 7		—		668		—		—
Grade 8		—		—		—		—
	$	44,268	$	107,795	$	—	$	—

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	3,283	$	20,718	$	—	$	1,778
30-59 Days Past Due		1		—		—		78
60-89 Days Past Due		—		37		—		—
³ 90 Days Past Due		—		1		—		—
	$	3,284	$	20,756	$	—	$	1,856

Covered Loans
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	915	$	—	$	—	$	—
Grade 2		1,801		—		—		—
Grade 3		—		538		—		—
Grade 4		101,794		343,697		4,207		—
Grade 5		32,094		154,591		1,992		—
Grade 6		78,153		348,152		83,051		—
Grade 7		2,637		31,240		10,804		—
Grade 8		—		—		—		—
	$	217,394	$	878,218	$	100,054	$	—

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	10,455	$	143,757	$	—	$	48,578
30-59 Days Past Due		505		500		—		14,807
60-89 Days Past Due		136		896		—		1,062
³ 90 Days Past Due		42		979		—		9,364
	$	11,138	$	146,132	$	—	$	73,811

26

As of December 31, 2010

Legacy Loans
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	66,802	$	13,387	$	3,301	$	8,069
Grade 2		64,740		4,462		6,700		—
Grade 3		260,351		278,274		39,986		11,414
Grade 4		1,476,930		1,486,620		188,949		43,210
Grade 5		61,284		87,155		8,055		311
Grade 6		55,720		157,422		30,168		—
Grade 7		2		—		—		—
Grade 8		—		—		—		—
	$	1,985,829	$	2,027,320	$	277,159	$	63,004

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	1,279,307	$	722,351	$	145,624	$	375,022
30-59 Days Past Due		14,486		2,500		1,570		10,574
60-89 Days Past Due		4,491		755		975		1,665
³ 90 Days Past Due		7,059		744		1,337		14,815
	$	1,305,343	$	726,350	$	149,506	$	402,076

Acquired Loans (Noncovered)
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		451		5,934		—		—
Grade 4		95,392		133,613		—		—
Grade 5		5		—		—		—
Grade 6		300		1,494		—		—
Grade 7		—		—		—		—
Grade 8		—		—		—		—
	$	96,148	$	141,041	$	—	$	—

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	3,438	$	22,853	$	—	$	1,702
30-59 Days Past Due		40		105		—		65
60-89 Days Past Due		16		24		—		—
³ 90 Days Past Due		23		46		—		—
	$	3,517	$	23,028	$	—	$	1,767

Covered Loans
	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	641	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		3,045		1,337		—		—
Grade 4		111,792		430,553		4,262		—
Grade 5		63,624		221,020		3,260		—
Grade 6		67,253		317,134		69,998		—
Grade 7		12,839		48,171		39,650		—
Grade 8		—		—		—		—
	$	259,194	$	1,018,215	$	117,170	$	—

	Consumer
	Installment		Home Equity Lines		Credit Cards		Residential Mortgages
Current	$	10,327	$	183,277	$	—	$	65,193
30-59 Days Past Due		667		1,476		—		14,975
60-89 Days Past Due		493		738		—		3,625
³ 90 Days Past Due		36		443		—		12,320
	$	11,523	$	185,934	$	—	$	96,113

27

5. Allowance for loan losses

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

The allowance for loan losses is Management’s estimate of the amount of probable credit losses inherent in the portfolio at the balance sheet date. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio’s collectability characteristics not captured by historical loss data.

The Corporation’s historical loss component is the most significant of the allowance for loan losses components and is based on historical loss experience by credit-risk grade (for commercial loan pools) and payment status (for mortgage and consumer loan pools). Balances by credit-risk grade and payment status, as well as descriptions of the credit-risk grades are included in Note 4 (Loans). The historical loss experience component of the allowance for loan losses represents the results of migration analysis of historical net charge-offs for portfolios of loans (including groups of commercial loans within each credit-risk grade and groups of consumer loans by payment status). For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.

If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporation’s credit-risk grading process, further analysis is performed to determine the probable loss content and assign a specific allowance to the loan, if deemed appropriate. The allowance for loan losses relating to originated loans that have become impaired is based on either expected cash flows discounted using the original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans. To the extent credit deterioration occurs on purchased loans after the date of acquisition, the Corporation records an allowance for loan losses, net of any expected reimbursement under any loss sharing agreements with the FDIC.

The activity within the allowance for loan loss for noncovered loans, by portfolio type, for the quarter and nine months ended September 30, 2011 is shown in the following table:

28

For the quarter ended September 30, 2011

Legacy Loans

	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Beginning Balance	$	28,366		$	32,946		$	7,876		$	353		$	18,089		$	7,142		$	8,403		$	6,012		$	109,187
Charge-offs		(5,377	)		(3,304	)		(550	)		(651	)		(5,911	)		(1,929	)		(1,520	)		(771	)		(20,014	)
Recoveries		731			6			171			1			3,375			466			585			74			5,410
Provision		6,618			3,653			(682	)		622			2,770			564			528			531			14,604
Ending Balance	$	30,338		$	33,301		$	6,815		$	325		$	18,323		$	6,243		$	7,996		$	5,846		$	109,187
Ending Balance: Individually Evaluated	$	256		$	2,064		$	1,264		$	—		$	1,568		$	52		$	121		$	1,346		$	6,671
Ending Balance: Collectively Evaluated	$	30,082		$	31,237		$	5,551		$	325		$	16,755		$	6,191		$	7,875		$	4,500		$	102,516
Loans:
Ending Balance	$	2,657,990		$	1,956,226		$	252,578		$	57,992		$	1,268,043		$	722,621		$	142,710		$	395,453		$	7,453,613
Ending Balance: Individually Evaluated	$	4,271		$	39,288		$	11,789		$	—		$	34,654		$	4,413		$	2,356		$	16,316		$	113,087
Ending Balance: Collectively Evaluated	$	2,653,719		$	1,916,937		$	240,789		$	57,992		$	1,233,389		$	718,208		$	140,354		$	379,137		$	7,340,525

For the nine months ended September 30, 2011

Legacy Loans

	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Beginning Balance	$	29,764		$	32,026		$	7,180		$	475		$	21,555		$	7,217		$	11,107		$	5,366		$	114,690
Charge-offs		(15,672	)		(7,763	)		(3,245	)		(778	)		(20,204	)		(6,200	)		(6,135	)		(3,786	)		(63,784	)
Recoveries		1,838			54			545			35			10,812			1,255			1,789			192			16,521
Provision		14,408			8,984			2,335			593			6,160			3,971			1,235			4,074			41,760
Ending Balance	$	30,338		$	33,301		$	6,815		$	325		$	18,323		$	6,243		$	7,996		$	5,846		$	109,187
Ending Balance: Individually Evaluated	$	256		$	2,064		$	1,264		$	—		$	1,568		$	52		$	121		$	1,346		$	6,671
Ending Balance: Collectively Evaluated	$	30,082		$	31,237		$	5,551		$	325		$	16,755		$	6,191		$	7,875		$	4,500		$	102,516
Loans:
Ending Balance	$	2,657,989		$	1,956,226		$	252,578		$	57,992		$	1,268,043		$	722,621		$	142,710		$	395,453		$	7,453,613
Ending Balance: Individually Evaluated	$	4,271		$	39,288		$	11,789		$	—		$	34,654		$	4,413		$	2,356		$	16,316		$	113,087
Ending Balance: Collectively Evaluated	$	2,653,718		$	1,916,938		$	240,789		$	57,992		$	1,233,389		$	718,208		$	140,354		$	379,137		$	7,340,525

The activity within the allowance for loan loss for noncovered loans for the year ended December 31, 2010 and the quarter and nine months ended September 30, 2010 is shown in the following table:

29

Allowance for Noncovered Loan Losses	Quarter ended September 30, 2010		Nine months ended September 30, 2010		Year ended December 31, 2010
Balance at beginning of period	$	118,343	$	115,092	$	115,092
Loans charged off:
C&I, CRE and Construction		10,704		26,541		39,766
Residential mortgages		1,153		4,194		5,156
Installment		8,154		25,389		34,054
Home equity lines		1,923		6,754		7,912
Credit cards		2,902		11,080		13,577
Leases		55		692		896
Overdrafts		926		2,329		3,171
Total charge-offs		25,817		76,979		104,532
Recoveries:
C&I, CRE and Construction		503		1,305		1,952
Residential mortgages		138		201		263
Installment		3,946		9,044		13,047
Home equity lines		481		1,182		1,599
Credit cards		600		1,681		2,199
Manufactured housing		36		122		156
Leases		2		240		267
Overdrafts		188		673		864
Total recoveries		5,894		14,448		20,347
Net charge-offs		19,923		62,531		84,185
Provision for noncovered loan losses		18,108		63,967		83,783
Balance at end of period	$	116,528	$	116,528	$	114,690

To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any Loss Share Agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the quarter ended September 30, 2011, the Corporation increased its allowance for covered loan losses to $34.6 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance from the prior quarter ended June 30, 2011 was recorded by a charge to the provision for covered loan losses of $13.0 million and an increase of $8.2 million in the loss share receivable for the portion of the losses recoverable under the Loss Share Agreements.

To the extent credit deterioration occurs in Acquired Non-Impaired loans after the date of acquisition, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under the Loss Share Agreements exceeds any remaining credit discount. The Corporation recognized a provision for loan losses on Acquired Non-Impaired Loans of $0.6 million in the quarter ended September 30, 2011.

The activity within the allowance for loan loss for covered loans for the quarters and nine months ended September 30, 2011 and 2010 and the year ended December 31, 2010 is shown in the following table:

30

	Quarter ended September 30,						Nine months ended September 30,						Year ended December 31,
	2011			2010			2011			2010			2010
Balance at beginning of the period	$	33,360		$	241		$	13,733		$	—		$	—
Provision for loan losses before benefit attributable to FDIC loss share agreements		12,992			9,684			48,658			10,144			27,184
Benefit attributable to FDIC loss share agreements		(8,224	)		(9,091	)		(31,078	)		(9,284	)		(22,752	)
Net provision for loan losses, covered		4,768			593			17,580			860			4,432
Increase in indemnification asset		8,224			9,091			31,078			9,284			22,752
Loans charged-off		(11,749	)		(6,488	)		(27,788	)		(6,707	)		(13,451	)
Balance at end of the period	$	34,603		$	3,437		$	34,603		$	3,437		$	13,733

Credit Quality Disclosures

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as troubled debt restructurings (“TDRs”). Aggregated consumer loans, mortgage loans, and leases that are collectively evaluated for impairment are not included in the following tables.

31

As of September 30, 2011

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	843	$	1,831	$	—	$	1,613
CRE		28,728		40,092		—		34,838
Construction		5,883		8,657		—		6,850
Consumer
Installment		—		—		—		—
Home equity line		—		—		—		—
Credit card		—		—		—		—
Residential mortgages		2,872		2,888		—		2,999
Impaired loans with a related allowance
Commercial
C&I	$	3,428	$	4,725	$	256	$	4,053
CRE		10,560		15,444		2,064		12,286
Construction		5,906		8,840		1,264		6,386
Consumer
Installment		34,654		34,703		1,568		34,485
Home equity line		4,413		4,412		52		4,581
Credit card		2,356		2,356		121		2,560
Residential mortgages		13,444		13,479		1,346		13,409
Total
Commercial	$	55,348	$	79,589	$	3,584	$	66,026
Consumer		57,739		57,838		3,087		58,034
Total impaired loans	$	113,087	$	137,427	$	6,671	$	124,060

32

As of December 31, 2010

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	12,172	$	15,045	$	—	$	12,816
CRE		34,003		40,619		—		35,238
Construction		10,120		14,710		—		10,833
Consumer
Installment		17,146		17,164		—		17,313
Home equity line		1,747		1,747		—		1,764
Credit card		3,081		3,081		—		2,926
Residential mortgages		1,992		2,765		—		2,027
Impaired loans with a related allowance
Commercial
C&I	$	—	$	—	$	—	$	—
CRE		30,792		37,767		3,852		33,172
Construction		7,585		11,423		1,588		8,928
Consumer
Installment		—		—		—		—
Home equity line		—		—		—		—
Credit card		—		—		—		—
Residential mortgages		9,705		9,776		741		9,713
Total
Commercial	$	94,672	$	119,564	$	5,440	$	100,987
Consumer		33,671		34,533		741		33,743
Total impaired loans	$	128,343	$	154,097	$	6,181	$	134,730

As of September 30, 2010, there was $79.6 million in impaired loans with an associated allowance of $8.6 million.

Interest income recognized on impaired loans during the quarters and nine months ended September 30, 2011 and 2010 was not material.

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

The substantial majority of the Corporation’s residential mortgage TDRs involve reducing the client’s loan payment through an interest rate reduction for a set period of time based on the borrower’s ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by Loss Share Agreements. The Corporation participates in the U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period.

Included in the impaired loan balances above were TDRs of $70.4 million and $46.8 million as of September 30, 2011 and December 31, 2010, respectively. TDRs were $64.0 million as of September 30, 2010. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporation’s internal watch list and have been specifically allocated for as part of the Corporation’s normal loan loss provisioning methodology. Included in the impaired loan balances above were allowance for loan losses on TDRs of $4.2 million an $1.0 million as of September 30, 2011 and December 31, 2010, respectively.

33

As a result of adopting the amendments in ASU 2011-02, the Corporation reassessed all restructurings that occurred on or after January 1, 2011 for identification as TDRs. The Corporation identified as TDRs certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as TDRs, the Corporation identified them as impaired. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance for those receivables newly identified as impaired. The application of this new guidance to the commercial noncovered portfolio changed the evaluation of two loans with a recorded investment of $1.8 million to be classified as TDRs. The allowance for credit losses associated with these two loans, on the basis of a current evaluation of loss, was $0.3 million. In the consumer portfolio, $23.9 million of loans were reclassified as TDRs in the quarter ended September 30, 2011. The allowance for credit losses associated with these consumer loans, on the basis of a current evaluation of loss, was $1.3 million.

Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. The Corporation has modified certain loans according to provisions in Loss Share Agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the Loss Share Agreements. As of September 30, 2011 and December 31, 2010, TDRs on Acquired Impaired Loans were $59.6 million and $37.2 million, respectively. There were no TDRs on Acquired Impaired loans as of September 30, 2010. At September 30, 2011, the end of the first interim period of adoption of ASU 2011-02, the recorded investment in covered loans, now considered a TDR was $1.9 million, and the allowance for credit losses associated with those noncovered loans, on the basis of a current evaluation of loss, was $0.2 million.

The following table provides a summary of TDRs by loan type as of September 30, 2011, including the delinquency status for TDRs that continue to accrue interest and TDRs included in nonperforming assets.

	Accruing TDRs						Nonaccruing TDRs						Total		Total
	Current		Delinquent		Total		Current		Delinquent		Total		TDRS		Allowance
Noncovered loans
Commercial
C&I	$	129		—	$	129	$	—		967	$	967	$	1,096	$	215
CRE		4,778		—		4,778		1,215		2,075		3,290		8,068		125
Construction		2,760		—		2,760		180		503		683		3,443		772
Total noncovered commercial		7,667		—		7,667		1,395		3,545		4,940		12,607		1,112
Consumer
Installment		32,930		1,773		34,703		—		—		—		34,703		1,568
Home equity lines		3,884		528		4,412		—		—		—		4,412		52
Credit card		2,201		158		2,359		—		—		—		2,359		121
Residential mortgages		10,470		3,784		14,254		—		2,113		2,113		16,367		1,346
Total noncovered consumer		49,485		6,243		55,728		—		2,113		2,113		57,841		3,087
Covered loans
Commercial
C&I		6,052		—		6,052		—		1,235		1,235		7,287		746
CRE		41,403		—		41,403		—		—		—		41,403		1,542
Construction		10,940		—		10,940		—		—		—		10,940		394
Total covered commercial		58,395		—		58,395		—		1,235		1,235		59,630		2,682
Total TDRs	$	115,547		6,243	$	121,790	$	1,395		6,893	$	8,288	$	130,078	$	6,881

In the quarter ended September 30, 2011, five commercial loans with a recorded investment of $2.4 million which had been modified in a TDR defaulted and were subsequently charged-off. In the nine months ended September 30, 2011, twelve commercial loans with a recorded investment of $4.6 million which had been modified in a TDR defaulted and were subsequently charged-off. The recorded investment of defaulted consumer loans which had been modified in a TDR in the quarter and nine months ended September 30, 2011 was $0.3 million and $0.4 million, respectively. Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance for loan losses, or partial charge-offs may be taken to further write-down the carrying value of the loan.

At September 31, 2011, the Corporation had $1.0 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

6. Goodwill and Intangible Assets

Goodwill

Goodwill totaled $460.0 million at September 30, 2011, December 31, 2010, and September 30, 2010. Goodwill of $272.1 million, which reflects prior period purchase accounting adjustments, was acquired in the second quarter of 2010 in the FDIC assisted acquisition of Midwest.

The Corporation expects $43.5 million of the $48.3 million of goodwill acquired in the First Bank branches acquisition and all of the goodwill acquired in the Midwest acquisition to be deductible for tax purposes.

Goodwill was not recognized in the 2010 acquisition of George Washington. These acquisitions are more fully described in Note 2 (Business Combinations).

34

Other Intangible Assets

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

	September 30, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	16,760	$	(8,339	)	$	8,421
Non-compete covenant		102		(45	)		57
Lease intangible		617		(313	)		304
	$	17,479	$	(8,697	)	$	8,782

	December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	16,760	$	(6,871	)	$	9,889
Non-compete covenant		102		(25	)		77
Lease covenant		617		(172	)		445
	$	17,479	$	(7,068	)	$	10,411

	September 30, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	16,760	$	(5,919	)	$	10,841
Non-compete covenant		102		(19	)		83
Lease covenant		617		(125	)		492
	$	17,479	$	(6,063	)	$	11,416

Intangible asset amortization expense was $0.5 million and $1.0 million for the three months ended September 30, 2011 and 2010, respectively. Estimated amortization expense for each of the next five years is as follows: 2011 - $0.5 million; 2012 - $1.9 million; 2013 - $1.2 million; 2014 - $1.1 million; and 2015 - $1.0 million.

7. Earnings per share

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

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	Quarter ended				Nine months ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
BASIC EPS:
Net income	$	31,737	$	28,996	$	89,060	$	75,879
Net income available to common shareholders	$	31,737	$	28,996	$	89,060	$	75,879
Average common shares outstanding		109,245		108,793		109,052		98,588
Net income per share - basic	$	0.29	$	0.27	$	0.82	$	0.77
DILUTED EPS:
Net income available to common shareholders	$	31,737	$	28,996	$	89,060	$	75,879
Add: interest expense on convertible bonds		—		—		—		—
	$	31,737	$	28,996	$	89,060	$	75,879
Avg common shares outstanding		109,245		108,793		109,052		98,588
Add: Equivalents from stock options and restricted stock		1		1		1		2
Add: Equivalents-convertible bonds		—		—		—		—
Average common shares and equivalents outstanding		109,246		108,794		109,053		98,590
Net income per common share - diluted	$	0.29	$	0.27	$	0.82	$	0.77

For the quarters ended September 30, 2011 and 2010 options to purchase 3.3 million and 4.4 million shares, respectively, were outstanding, but not included in the computation of diluted earnings per share because they were antidilutive.

8. Segment Information

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

A description of each line of 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

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consumer direct and indirect installment loans, debit and credit cards, debit gift cards, residential mortgage loans, home equity loans and lines of credit, deposit products, fixed and variable annuities and ATM network services. Deposit products include checking, savings, money market accounts and certificates of deposit.

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

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

The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the 2010 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.

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	Commercial				Retail				Wealth				Other						Consolidated
September 30, 2011	3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr			YTD			3rd Qtr		YTD
OPERATIONS:
Net interest income	$	65,998	$	198,197	$	56,705	$	168,718	$	4,568	$	14,205	$	(7,879	)	$	(22,461	)	$	119,392	$	358,659
Provision for loan losses		4,546		29,653		5,249		17,715		1,261		2,587		8,316			9,385			19,372		59,340
Other income		16,219		43,632		28,333		78,309		7,784		24,066		8,436			19,012			60,772		165,019
Other expenses		36,745		110,073		57,567		177,201		10,004		30,363		11,641			22,833			115,957		340,470
Net income		40,644		100,519		20,464		45,779		1,199		5,420		(30,570	)		(62,658	)		31,737		89,060
AVERAGES :
Assets	$	6,258,625	$	6,162,742	$	2,925,345	$	2,937,888	$	237,638	$	240,919	$	5,189,020		$	5,110,002		$	14,610,,628	$	14,451,551

	Commercial				Retail				Wealth				Other						Consolidated
September 30, 2010	3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr		YTD		3rd Qtr			YTD			3rd Qtr		YTD
OPERATIONS:
Net interest income	$	73,410	$	180,694	$	58,389	$	159,919	$	4,852	$	14,428	$	(13,158	)	$	(24,387	)	$	123,493	$	330,654
Provision for loan losses		13,656		34,686		13,837		34,071		729		2,615		(9,521	)		(6,545	)		18,701		64,827
Other income		12,002		34,997		30,709		83,425		8,238		24,395		4,186			15,427			55,135		158,244
Other expenses		28,220		80,429		58,117		165,523		10,243		29,158		24,090			45,296			120,670		320,406
Net income		43,017		99,349		14,585		37,522		2,066		6,835		(30,672	)		(67,827	)		28,996		75,879
AVERAGES :
Assets	$	5,973,022	$	5,185,560	$	3,085,313	$	2,953,148	$	274,993	$	284,762	$	5,253,798		$	4,775,816		$	14,587,126	$	13,199,286

9. Derivatives and Hedging Activities

The Corporation, through its mortgage banking, foreign exchange 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. Foreign exchange contracts are entered into to accommodate the needs of customers.

Derivatives Designated in Hedge Relationships

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

Through the Corporation’s Fixed Rate Advantage Program (“FRAP Program”) a customer received a fixed interest rate commercial loan and the Corporation subsequently converted that fixed rate loan to a variable rate instrument over the term of the loan by entering into an interest rate swap with a dealer counterparty. The Corporation receives a fixed rate payment from the customer on the loan and pays the equivalent amount to the

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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. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative.

As of September 30, 2011, December 31, 2010 and September 30, 2010, the notional values or contractual amounts and fair value of the Corporation’s derivatives designated in hedge relationships were as follows:

	Asset Derivatives												Liability Derivatives
	September 30, 2011				December 31, 2010				September 30, 2010				September 30, 2011				December 31, 2010				September 30, 2010
	Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)
Interest rate swaps:
Fair value hedges	$	—	$	—	$	6,920	$	—	$	—	$	—	$	248,447	$	28,278	$	303,933	$	28,550	$	325,845	$	36,772

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

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

Derivatives Not Designated in Hedge Relationships

As of September 30, 2011, December 31, 2010 and September 30, 2010, the notional values or contractual amounts and fair value of the Corporation’s derivatives not designated in hedge relationships were as follows:

	Asset Derivatives														Liability Derivatives
	September 30, 2011					December 31, 2010				September 30, 2010					September 30,2011				December 31, 2010				September 30, 2010
	Notional/ Contract Amount		Fair Value (a)			Notional/ Contract Amount		Fair Value (a)		Notional/ Contract Amount		Fair Value (a)			Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)		Notional/ Contract Amount		Fair Value (b)
Interest rate swaps	$	934,248	$	61,299		$	774,623	$	44,270	$	751,448	$	59,308		$	934,248	$	61,299	$	774,623	$	44,270	$	751,448	$	59,308
Mortgage loan commitments		227,999		5,525			118,119		1,384		244,984		6,201			—		—		—		—		—		—
Forward sales contracts		182,588		(1,591	)		113,426		2,106		184,250		(972	)		—		—		—		—		—		—
Credit contracts		—		—			—		—		—		—			24,435		—		44,983		—		45,468		—
Foreign exchange		2,461		85			3,733		4		5,189		27			2,456		80		3,733		4		5,189		27
Other		—		—			—		—		—		—			17,809		—		14,622		—		15,428		677
Total	$	1,347,296	$	65,318		$	1,009,901	$	47,764	$	1,185,871	$	64,564		$	978,948	$	61,379	$	837,961	$	44,274	$	817,533	$	60,012

(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.

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

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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. 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.

The Corporation periodically enters into derivative contracts by purchasing To Be Announced (“TBA”) Securities which are utilized as economic hedges of its MSRs to minimize the effects of loss of value of MSRs associated with increase prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSRs generally will increase while the value of the hedge instruments will decline. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. There were no outstanding TBA Securities contracts as of September 30, 2011, December 31, 2010 or September 30, 2010.

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 September 30, 2011, the remaining terms on these swap participation agreements generally ranged from one to seven years. The Corporation’s

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maximum estimated exposure to written swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $3.3 million as of September 30, 2011. The fair values of the written swap participations were not material at September 30, 2011, December 31, 2010 and September 30, 2010.

Gains and losses recognized in income on non-designated hedging instruments for the quarters ended September 30, 2011 and 2010 are as follows:

		Amount of Gain / (Loss) Recognized in Income on
Derivatives not designated as hedging instruments	Location of Gain / (Loss) Recognized in Income on Derivative	Derivative
		Quarter ended,			Quarter ended,
		September 30, 2011			September 30, 2010
Mortgage loan commitments	Other income	$	3,986		$	2,144
Forward sales contracts	Other income		(1,596	)		967
Foreign exchange contracts	Other income		6			—
Other	Other expenses		—			(677	)
Total		$	2,396		$	2,434

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 $113.8 million, $85.2 million and $111.4 million as of September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

10. Benefit Plans

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

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	Pension Benefits
	Quarter ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Components of Net Periodic Pension Cost
Service Cost	$	1,531		$	1,480		$	4,593		$	4,439
Interest Cost		2,860			2,800			8,580			8,400
Expected return on assets		(3,328	)		(3,015	)		(9,984	)		(9,044	)
Amortization of unrecognized prior service costs		98			98			294			295
Cumulative net loss		1,780			1,427			5,340			4,281
Net periodic pension cost	$	2,941		$	2,790		$	8,823		$	8,371

		2,790		2,790		2,790		2,790
	Postretirement Benefits
	Quarter ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Components of Net Periodic Postretirement Cost
Service Cost	$	14	$	15	$	42	$	45
Interest Cost		221		240		663		719
Amortization of unrecognized prior service costs		—		—		—		—
Cumulative net loss		28		4		84		12
Net periodic postretirement cost	$	263	$	259	$	789	$	776

Management contributed $10.0 million to the qualified pension plan in the quarter ended September 30, 2011.

The Corporation also maintains a savings plan under Section 401(k) of the Internal Revenue Code of 1987, as amended, covering substantially all full-time and part-time employees beginning in the quarter following three months of continuous employment. The savings plan was approved for non-vested employees in the defined benefit pension plan and new hires as of January 1, 2007. Effective January 1, 2009, the Corporation suspended its matching contribution to the savings plan. Effective April 1, 2011, the Corporation reinstated its matching contribution to $.50 for each $1.00 up to 1% of an employee’s qualifying salary. Matching contributions vest in accordance with plan specifications.

11. Fair Value Measurement

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

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

• 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.

	Level 1		Level 2		Level 3		Total
Available-for-sale securities	$	3,715	$	3,103,290	$	91,041	$	3,198,046
Residential loans held for sale		—		39,340		—		39,340
Derivative assets		—		65,318		—		65,318
Total assets at fair value on a recurring basis	$	3,715	$	3,207,948	$	91,041	$	3,302,704
Derivative liabilities	$	—	$	89,657	$	—	$	89,657
True-up liability		—		—		11,913		11,913
Total liabilities at fair value on a recurring basis	$	—	$	89,657	$	11,913	$	101,570

Note: There were no transfers between Levels 1 and 2 of the fair value hierarchy during the quarter ended September 30, 2011.

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.

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	Level 2				Level 3
	# Issues		Independent Pricing Service		# Issues		Independent Broker Quotes
U.S. government agency debentures		13	$	203,718		—	$	—
U.S States and political subdivisions		478		314,441		—		—
Residential mortgage-backed securities:
U.S. government agencies		196		1,481,222		—		—
Residential collateralized mortgage-backed securities:
U.S. government agencies		108		1,103,906		—		—
Non-agency		1		3		4		44,854
Corporate debt securities		—		—		8		46,187
		796	$	3,103,290		12	$	91,041

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 include mortgage-backed securities issued and guaranteed by the National Credit Union Administration and single issuer trust preferred securities. The fair value of these mortgage-backed securities is based on each security’s indicative market price obtained from a third-party vendor excluding accrued interest. 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 the trust preferred 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. The Corporation uses various techniques to validate the fair values received from third-party vendors for accuracy and reasonableness.

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

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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 September 30, 2011.

True-up liability.In connection with the George Washington and Midwest acquisitions, the Bank has agreed to pay the FDIC should the estimated losses on the acquired loan portfolios as well as servicing fees earned on the acquired loan portfolios not meet thresholds as stated in the purchase agreements. The determination of the true-up liability is specified in the purchase agreements and is payable to the FDIC on April 14, 2020 for the George Washington acquisition and on July 15, 2020 for the Midwest acquisition. The value of the true-up liability is discounted to reflect the uncertainty in the timing and payment of the true-up liability by the Bank. As of September 30, 2011, the estimated fair value of the George Washington true-up liability was $4.6 million and the Midwest true-up liability was $7.3 million.

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

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	Fair Value June 30, 2011		Total unrealized gains/losses (a)			Total changes in fair values included in current period earnings			Purchases		Sales			Settlements			Transfers		Fair value quarter ended September 30, 2011
Available-for-sale securities	$	144,570	$	(4,549	)	$	—		$	—	$	(44,924	)		(4,056	)	$	—	$	91,041
True-up liability	$	12,196	$	—		$	(283	)	$	—	$	—					$	—	$	11,913

(a) Reported in other comprehensive income (loss)

	Fair Value January 1, 2011		Total unrealized gains/(losses) (a)			Total changes in fair values included in current period earnings			Purchases		Sales			Settlements			Transfers		Fair value quarter ended September 30, 2011
Available-for-sale securities	$	60,344	$	(4,199	)	$	—		$	83,876	$	(44,924	)		(4,056	)	$	—	$	91,041
True-up liability	$	12,061	$	—		$	(148	)	$	—	$	—					$	—	$	11,913

(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.

	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	—	$	16,866	$	16,866
Impaired and nonaccrual loans		—		—		103,398		103,398
Other property (1)		—		—		26,829		26,829
Other real estate covered by loss share		—		—		69,376		69,376
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	216,469	$	216,469

(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.

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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 generally 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 has elected to fair value newly originated conforming fixed rate and adjustable-rate first mortgage loans held for sale. 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 U.S. GAAP. The following table reflects the differences, as of September 30, 2011, 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		Aggregate Unpaid Principal		Fair Value Carrying Amount Less Aggregate Unpaid Principal
Loans held for sale reported at fair value	$	39,340	$	37,786	$	1,554

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 mortgage loans held for sale measured at fair value included in earnings was $1.0 million and $0.3 million for the quarters ending September 30, 2011 and 2010, respectively, and $1.2 million and $.86 million for the nine months ended September 30, 2011 and 2010, respectively.

Disclosures about Fair Value of Financial Instruments

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

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	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and due from banks	$	318,945	$	318,945	$	523,113	$	523,113
Investment securities		3,364,634		3,451,053		3,154,333		3,207,754
Loan held for sale		39,340		39,340		41,340		41,340
Net noncovered loans		7,522,385		7,148,775		7,087,398		6,716,214
Net covered loans and loss share receivable		1,612,615		1,612,615		1,963,021		1,963,021
Accrued interest receivable		41,199		41,199		41,830		41,830
Mortgage servicing rights		16,792		16,866		21,317		21,579
Derivative assets		65,318		65,318		47,764		47,764
Financial liabilities:
Deposits	$	11,396,121	$	11,412,576	$	11,268,006	$	11,275,440
Federal funds purchased and securities sold under agreements to repurchase		987,030		991,304		777,585		782,668
Wholesale borrowings		248,006		256,069		326,007		329,465
Accrued interest payable		4,627		4,627		6,560		6,560
Derivative liabilities		89,657		89,657		72,824		72,824
True up liability		11,913		11,913		12,061		12,061

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

Cash and due from banks– For these short-term instruments, the carrying amount is considered a reasonable estimate of fair value.

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

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

Net 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.

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

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

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

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

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

Federal funds purchased and securities sold under agreements to repurchase 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.

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

12. Mortgage Servicing Rights and Mortgage Servicing Activity

In the nine months ended September 30, 2011 and 2010, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $324.8 million and $348.8 million, respectively, and recognized pre-tax gains of $5.2 million and $4.9 million, respectively, which are included as a component of loan sales and servicing income.The Corporation retained the related mortgage servicing rights on $283.2 million and $291.8 million, respectively, of the loans sold and receives servicing fees.

The Corporation serviced for third parties approximately $2.2 billion of residential mortgage loans at September 30, 2011 and $2.1 billion at December 31, 2010 and September 30, 2010. For the nine months ended September 30, 2011 and 2010, loan servicing fees, not including valuation changes included in loan sales and servicing income, were $4.0 million and $3.8 million, respectively.

Servicing rights are presented within other assets on the accompanying consolidated 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 11 (Fair Value Measurement). Mortgage servicing rights are subsequently measured using the amortization method. Accordingly, the mortgage servicing rights are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.

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

	Quarter ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Balance at beginning of period	$	20,744		$	19,327		$	21,317		$	20,784
Addition of mortgage servicing rights		798			1,497			2,659			2,890
Amortization		(1,111	)		(1,144	)		(3,195	)		(2,903	)
Changes in allowance for impairment		(3,639	)		(1,009	)		(3,989	)		(2,100	)
Balance at end of period	$	16,792		$	18,671		$	16,792		$	18,671
Fair value at end of period	$	16,866		$	18,676		$	16,866		$	18,676

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. The valuation allowance was $4.0 million as of September 30, 2011 and $2.1 million as of September 30, 2010. No valuation allowance was required as of December 31, 2010. No permanent impairment losses were written off against the allowance during the quarters ended September 30, 2011 and September 30, 2010.

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 September 30, 2011 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)		16.8	%
Decrease in fair value from 10% adverse change	$	901
Decrease in fair value from 25% adverse change		2,133
Discount rate assumption		9.7	%
Decrease in fair value from 100 basis point adverse change	$	468
Decrease in fair value from 200 basis point adverse change		907
Expected weighted-average life (in months)		71.1

13. Contingencies and Guarantees

Litigation

In the normal course of business, the Corporation and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Although the Corporation is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, Management believes that based on the information currently available the outcome of such

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

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

Overdraft Litigation

Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Plea against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees.

365/360 Interest Litigation

In August 2008 a lawsuit was filed in the Cuyahoga County Court of Common Pleas against the Bank. The breach of contract complaint was brought as a putative class action on behalf of Ohio commercial borrowers who had allegedly had the interest they owed calculated improperly by using the 365/360 method. The complaint seeks actual damages, interest, injunctive relief and attorney fees.

Schneider Litigation

Commencing in May 2006, two lawsuits were filed in the Cuyahoga County Court of Common Pleas against the Bank. One complaint was filed by the receiver for the Bank customers Alan and Joanne Schneider, and the other complaint was filed by alleged defrauded investors of the Schneiders seeking to represent a class of persons who invested in promissory notes offered by the Schneiders. The allegations against the Bank arose out of Alan Schneider’s business checking account at the Bank into which investors’ checks were deposited and from which certain investors received payments. The complaints sought, among other things, actual damages, treble damages, punitive damages, interest, rescission and attorney fees. On January 14, 2011, a third-party complaint was filed by the Bank against its insurers in the receiver’s lawsuit. By opinion dated February 10, 2011 the Cuyahoga County Court of Appeals reversed the trial court’s decision certifying an investor class in the case brought by the alleged defrauded investors.

On July 20, 2011 the Bank entered into a settlement agreement in the lawsuit with the receiver for Alan and Joanne Schneider that provides if certain conditions are satisfied the Bank’s insurer will make a settlement payment of approximately $9.9 million and the Bank will make a settlement payment of approximately $0.6 million. These payments will be used to pay the receiver’s legal fees and expenses and the balance distributed to the allegedly defrauded investors by the receiver in accordance with the settlement agreement. The Court conducted a hearing and approved the proposed settlement on August 15, 2011. All conditions have been met and the Bank’s insurer and the Bank have made the settlement payments. All of the named plaintiffs in the second lawsuit participated in the settlement with the receiver.

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

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 9 (Derivatives and Hedging Activities). Commitments generally are extended at the then prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The allowance for unfunded lending commitments at September 30, 2011 was $6.4 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 September 30, 2011. 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.

	September 30, 2011
Loan Commitments
Commercial	$	2,483,210
Consumer		1,602,231
Total loan commitments	$	4,085,441

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The following table shows the types of guarantees the Corporation had outstanding as of September 30, 2011.

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	September 30, 2011
Financial guarantees
Standby letters of credit	$	130,186
Loans sold with recourse		40,763
Total financial guarantees	$	170,949

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 $92.7 million at September 30, 2011, the remaining guarantees extend in varying amounts through 2017.

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. The allowance for loan loss associated with loans sold with recourse was $2.0 million as of September 30, 2011.

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

AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)

Fully Tax-equivalent Interest Rates and Interest Differential

	Three months ended								Year ended								Three months ended
	September 30, 2011								December 31, 2010								September 30, 2010
(Dollars in thousands)	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
ASSETS
Cash and due from banks	$	517,150							$	728,723							$	821,713
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,974,656			19,864		2.65	%		2,554,538			87,019		3.41	%		2,609,406			21,364		3.25	%
Obligations of states and political subdivisions (tax exempt)		385,055			5,022		5.17	%		348,832			20,505		5.88	%		346,380			4,848		5.55	%
Other securities and federal funds sold		316,383			2,084		2.61	%		300,700			8,508		2.83	%		315,225			2,197		2.77	%
Total investment securities and federal funds sold		3,676,094			26,970		2.91	%		3,204,070			116,032		3.62	%		3,271,011			28,409		3.45	%
Loans held for sale		24,524			284		4.59	%		23,612			1,162		4.92	%		21,659			269		4.93	%
Noncovered loans, covered loans and loss share receivable		9,177,487			108,444		4.69	%		8,529,303			433,308		5.08	%		9,286,816			118,680		5.07	%
Total earning assets		12,878,105			135,698		4.18	%		11,756,985			550,502		4.68	%		12,579,486			147,358		4.65	%
Total allowance for loan losses		(138,441	)							(116,118	)							(113,062	)
Other assets		1,353,814								1,154,761								1,298,989
Total assets	$	14,610,628							$	13,524,351							$	14,587,126
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand - non-interest bearing	$	2,988,521			—		—		$	2,550,849			—		—		$	2,730,483			—		—
Demand - interest bearing		913,252			218		0.09	%		794,497			751		0.09	%		858,168			223		0.10	%
Savings and money market accounts		5,446,351			6,929		0.50	%		4,303,815			31,912		0.74	%		4,502,779			8,212		0.72	%
Certificates and other time deposits		2,099,558			4,370		0.83	%		2,801,270			32,713		1.17	%		3,334,311			9,702		1.15	%
Total deposits		11,447,682			11,517		0.40	%		10,450,431			65,376		0.63	%		11,425,741			18,137		0.63	%
Securities sold under agreements to repurchase		969,020			977		0.40	%		907,015			4,477		0.49	%		928,607			984		0.42	%
Wholesale borrowings		320,691			1,669		2.06	%		510,799			13,998		2.74	%		443,890			2,725		2.44	%
Total interest bearing liabilities		9,748,872			14,163		0.58	%		9,317,396			83,851		0.90	%		10,067,755			21,846		0.86	%
Other liabilities		302,824								340,485								275,361
Shareholders’ equity		1,570,411								1,315,621								1,513,527
Total liabilities and shareholders’ equity	$	14,610,628							$	13,524,351							$	14,587,126
Net yield on earning assets	$	12,878,105			121,535		3.74	%	$	11,756,985			466,651		3.97	%	$	12,579,486			125,512		3.96	%
Interest rate spread							3.60	%							3.78	%							3.79	%

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.

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AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)

Fully-tax Equivalent Interest Rates and Interest Differential

	Nine months ended September 30, 2011								Year ended December 31, 2010								Nine months ended September 30, 2010
(Dollars in thousands)	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
ASSETS
Cash and due from banks	$	541,992							$	728,723							$	701,392
Investment securities and federal funds sold:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,906,269			59,174		2.72	%		2,554,538			87,019		3.41	%		2,545,998			67,682		3.55	%
Obligations of states and political subdivisions tax exempt)		370,553			14,956		5.40	%		348,832			20,505		5.88	%		347,653			14,800		5.69	%
Other securities and federal funds sold		296,976			6,436		2.90	%		300,700			8,508		2.83	%		298,975			6,350		2.84	%
Total investment securities and federal funds sold		3,573,798			80,566		3.01	%		3,204,070			116,032		3.62	%		3,192,626			88,832		3.72	%
Loans held for sale		21,877			779		4.76	%		23,612			1,162		4.92	%		18,368			692		5.04	%
Noncovered loans, covered loans and loss share receivable		9,126,596			330,965		4.85	%		8,529,303			433,308		5.08	%		8,317,510			312,506		5.02	%
Total earning assets		12,722,271			412,310		4.33	%		11,756,985			550,502		4.68	%		11,528,503			402,030		4.66	%
Allowance for loan losses noncovered		(138,758	)							(116,118	)							(114,823	)
Other assets		1,326,045								1,154,761								1,084,214
Total assets	$	14,451,550							$	13,524,351							$	13,199,286
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand - non-interest bearing	$	2,954,172			—		—		$	2,550,849			—		—		$	2,459,598			—		—
Demand - interest bearing		859,903			579		0.09	%		794,497			751		0.09	%		773,110			553		0.10	%
Savings and money market accounts		5,236,540			22,172		0.57	%		4,303,815			31,912		0.74	%		4,168,311			23,768		0.76	%
Certificates and other time deposits		2,360,522			16,803		0.95	%		2,801,270			32,713		1.17	%		2,733,311			25,504		1.25	%
Total deposits		11,411,137			39,554		0.46	%		10,450,431			65,376		0.63	%		10,134,330			49,825		0.66	%
Securities sold under agreements to repurchase		900,920			2,832		0.42	%		907,015			4,477		0.49	%		907,977			3,517		0.52	%
Wholesale borrowings		323,678			4,963		2.05	%		510,799			13,998		2.74	%		558,787			12,009		2.87	%
Total interest bearing liabilities		9,681,563			47,349		0.65	%		9,317,396			83,851		0.90	%		9,141,496			65,351		0.96	%
Other liabilities		275,452								340,485								352,485
Shareholders’ equity		1,540,363								1,315,621								1,245,707
Total liabilities and shareholders’ equity	$	14,451,550							$	13,524,351							$	13,199,286
Net yield on earning assets	$	12,722,271			364,961		3.84	%	$	11,756,985			466,651		3.97	%	$	11,528,503			336,679		3.90	%
Interest rate spread							3.68	%							3.78	%							3.70	%

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.

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HIGHLIGHTS OF THIRD QUARTER 2011 PERFORMANCE

Earnings Summary

FirstMerit reported third quarter 2011 net income of $31.7 million, or $0.29 per diluted share. This compares with $29.8 million, or $0.27 per diluted share, for the second quarter of 2011 and $29.0 million, or $0.27 per diluted share, for the third quarter 2010.

Returns on average common equity (“ROE”) and average assets (“ROA”) for the third quarter 2011 were 8.02% and 0.86%, respectively, compared with 7.78% and 0.82% for the second quarter of 2011 and 7.60% and 0.79% for the third quarter 2010.

Net interest margin was 3.74% for the third quarter of 2011 compared with 3.77% for the second quarter of 2011 and 3.96% for the third quarter of 2010. The decline in net interest margin in both periods was due to continued pressure on earning asset yields which migrated lower in the quarter. Lower yields on new loan originations and reinvestment rates on security cash flows below historical averages are attributable to the current interest rate environment. The Corporation again this quarter lowered average deposit costs compared to the prior and year-ago quarters primarily due to its success in increasing the composition of core deposits, which offset additional pressure to the net interest margin.

Average loans, not including covered loans, during the third quarter of 2011 increased $210.2 million, or 2.89%, compared with the second quarter of 2011 and $394.7 million, or 5.57%, compared with the third quarter of 2010. The average loan growth during the third quarter of 2011 was driven entirely by commercial loans, which increased $ 210.5 million, or 4.51%, compared with the second quarter of 2011 and increased $539.4 million, or 12.44%, compared with the third quarter of 2010. Average covered loan balances including the indemnification asset were $1.7 billion, $1.8 billion, and $2.2 billion at September 30, 2011, June 30, 2011, and September 30, 2010, respectively. The covered loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.

Average deposits during the third quarter of 2011 decreased $17.1 million, or 0.15%, compared with the second quarter of 2011 and increased $21.9 million, or 0.19%, compared with the third quarter of 2010. During the third quarter of 2011, the Corporation increased its average core deposits, which excludes time deposits, by $246.6 million, or 2.71%, compared with the second quarter of 2011, and $1.3 billion, or 15.53%, compared with the third quarter of 2010.Average time deposits decreased $263.6 million, or 11.16%, from the second quarter of 2011 and decreased $1.2 billion, or 37.03%, from the third quarter of 2010.

Average investments during the third quarter of 2011 increased $53.3 million, or 1.47%, compared with the second quarter of 2011 and increased $405.1 million, or 12.38%, over the third quarter of 2010.

Net interest income on a fully tax-equivalent (“FTE”) basis was $121.5 million in the third quarter 2011 compared with $119.5 million in the second quarter of 2011 and $125.5 million in the third quarter of 2010. Compared with the second quarter of 2011, average earning assets increased $153.8 million, or 1.21%, and increased $298.6 million, or 2.37%, compared to the third quarter of 2010.

Noninterest income, net of securities transactions, for the third quarter of 2011 was $56.4 million, an increase of $5.8 million, or 11.40%, from the second quarter of 2011 and an increase of $1.3 million, or 2.35%, from the third quarter of 2010.

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Other income was $60.8 million for the third quarter of 2011, an increase of $9.3 million, or 18.06% from the second quarter of 2011 and an increase of $5.7 million or 10.34% from the third quarter of 2010. Activity in the quarter included net realized gains on the sale of investment securities of $4.4 million, offset by $3.3 million of MSR impairment which is reported as part of loan sales and servicing income. Service charges on deposits increased $2.1 million and ATM and other service fees increased $0.7 million, compared to the second quarter of 2011 due to recent product introductions and pricing. Included in other operating income is an increase of $2.1 million in the fair value of interest rate lock commitments from an increase in the mortgage pipeline and $2.7 million from gains on covered loans paid in full.

Other income, net of securities gains, as a percentage of net revenue for the third quarter of 2011 was 31.69% compared with 29.75% for second quarter of 2011 and 30.50% for the third quarter of 2010. Net revenue is defined as net interest income, on a FTE basis, plus other income, less gains from securities sales.

Noninterest expense for the third quarter of 2011 was $116.0 million, an increase of $5.9 million, or 5.35%, from the second quarter of 2011 and a decrease of $4.7 million, or 3.91%, from the third quarter of 2010. Increases in noninterest expense compared with the second quarter of 2011 included a $4.5 million increase in salaries, wages, pension and employee benefits and a $1.5 million increase in other operating expense related to OREO and loan workout expense.

During the third quarter of 2011, the Corporation reported an efficiency ratio of 64.87%, compared with 64.39% for the second quarter of 2011 and 66.26% for the third quarter of 2010.

Net charge-offs, excluding acquired loans, totaled $14.6 million, or 0.79% of average loans, excluding acquired loans, in the third quarter of 2011 compared with $15.6 million, or 0.89% of average loans, in the second quarter of 2011 and $19.9 million, or 1.17% of average loans, in the third quarter of 2010. Provision for credit losses approximated net charge-offs in the third quarter of 2011 as compared to the prior linked quarter in which provision was less than net charge-offs by $5.5 million and third quarter of 2010 in which provision was less than net charge-offs by $1.8 million.

Nonperforming assets totaled $90.4 million at September 30, 2011, a decrease of $9.5 million compared with June 30, 2011 and a decrease of $24.9 million compared with September 30, 2010. Nonperforming assets at September 30, 2011 represented 1.21% of period-end loans plus other real estate, excluding acquired loans, compared with 1.38% at June 30, 2011 and 1.70% at September 30, 2010.

The allowance for noncovered loan losses, totaled $109.2 million at September 30, 2011 and June 30, 2011 and $116.5 million at September 30, 2010. At September 30, 2011, the allowance for noncovered loan losses was 1.46% of period-end loans compared with 1.51% at June 30, 2011, and 1.72% at September 30, 2010. The allowance for credit losses is the sum of the allowance for noncovered loan losses, and the reserve for unfunded lending commitments. For comparative purposes, the allowance for credit losses was 1.55% of period-end loans, excluding acquired loans, at September 30, 2011, compared with 1.59% at June 30, 2011 and 1.84% at September 30, 2010. The allowance for credit losses to nonperforming loans was 169.42% at September 30, 2011, compared with 158.30% at June 30, 2011 and 118.49% at September 30, 2010.

The Corporation’s total assets inclusive of intangible assets at September 30, 2011 were $14.7 billion, an increase of $340.7 million, or 2.37%, compared with June 30, 2011 and an increase of $334.2 million, or 2.33%, compared with September 30, 2010.

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Total deposits were $11.4 billion at September 30, 2011, an increase of $55.2 million, or 0.49%, from June 30, 2011 and an increase of $124.7 million, or 1.11%, from September 30, 2010. Core deposits totaled $9.5 billion at September 30, 2011, an increase of $360.6 million, or 3.97%, from June 30, 2011 and an increase of $1.4 billion, or 17.23%, from September 30, 2010.

Shareholders’ equity was $1.6 billion at September 30, 2011, compared with $1.6 billion at June 30, 2011 and $1.5 billion at September 30, 2010. The Corporation maintained a strong capital position as tangible common equity to assets was 7.75% at September 30, 2011, compared with 7.79% and 7.54% at June 30, 2011 and September 30, 2010, respectively. The common dividend per share paid in the third quarter 2011 was $0.16.

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 September 30, 2011 was $119.4 million compared to $123.5 million for the quarter ended September 30, 2010. Net interest income for the nine months ended September 30, 2011 was $358.7 million compared to $330.7 million for the nine months ended September 30, 2010. For the purpose of this remaining discussion, net interest income is presented on an FTE basis, to make tax-exempt loans and investment securities comparable to other taxable products. That is, interest on tax-exempt investment securities and 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 which Management believes to be the preferred industry measurement of net interest income and enhances comparability of net interest income arising from taxable and tax-exempt sources. In addition, Management believes this metric assists investors in understanding management’s view of particular financial measures, as well as aligns presentation of these financial measures with peers in the industry who may also provide a similar presentation. The FTE adjustment was $2.1 million and $2.0 million for the quarters ending September 30, 2011 and 2010, respectively. The FTE adjustment was $6.3 million and $6.0 million for the nine months ended September 30, 2011 and 2010, respectively.

FTE net interest income for the quarter ended September 30, 2011 was $121.5 million compared to $125.5 million for the three months ended September 30, 2010. FTE net interest income for the nine months ended September 30, 2011 was $365.0 million compared to $336.7 million for the nine months ended September 30, 2010.

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

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	Quarters ended September 30, 2011 and 2010									Nine months ended September 30, 2011 and 2010
RATE/VOLUME ANALYSIS	Increases (Decreases)									Increases (Decreases)
(Dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME - FTE
Investment securities	$	3,256		$	(4,695	)	$	(1,439	)	$	9,531		$	(17,797	)	$	(8,266	)
Loans held for sale		34			(19	)		15			127			(40	)		87
Loans		(1,641	)		(8,595	)		(10,236	)		29,620			(11,161	)		18,459
Total interest income - FTE	$	1,649		$	(13,309	)	$	(11,660	)	$	39,278		$	(28,998	)	$	10,280
INTEREST EXPENSE
Demand deposits-interest bearing	$	14		$	(19	)	$	(5	)	$	59		$	(33	)	$	26
Savings and money market accounts		1,506			(2,789	)		(1,283	)		5,309			(6,905	)		(1,596	)
Certificates of deposits and other time deposits		(3,015	)		(2,317	)		(5,332	)		(3,178	)		(5,523	)		(8,701	)
Securities sold under agreements to repurchase		42			(49	)		(7	)		(27	)		(658	)		(685	)
Wholesale borrowings		(682	)		(374	)		(1,056	)		(4,192	)		(2,854	)		(7,046	)
Total interest expense	$	(2,135	)	$	(5,548	)	$	(7,683	)	$	(2,029	)	$	(15,973	)	$	(18,002	)
Net interest income - FTE	$	3,784		$	(7,761	)	$	(3,977	)	$	41,307		$	(13,025	)	$	28,282

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 decrease in the Corporation’s net interest margin, compared with the third quarter of 2010 is attributable to continued pressure given the low interest rate environment and downward repricing on the asset side of the Corporation’s balance sheet. Lower yields on new loan originations and reinvestment rates on security cash flows below historical averages are attributable to the current interest rate environment. The Corporation again this quarter lowered average deposit costs compared to the prior and year-ago quarters primarily due to its success in increasing the composition of core deposits, which offset additional pressure to the net interest margin.

The following table provides 2011 FTE net interest income and net interest margin totals as well as 2010 comparative amounts:

	Quarters ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2011			2010			2011			2010
Net interest income	$	119,392		$	123,493		$	358,659		$	330,654
Tax equivalent adjustment		2,145			2,021			6,302			6,025
Net interest income - FTE	$	121,537		$	125,514		$	364,961		$	336,679
Average earning assets	$	12,878,105		$	12,600,422		$	12,722,271		$	11,528,503
Net interest margin - FTE		3.74	%		3.96	%		3.84	%		3.90	%

Average loans outstanding (excluding acquired loans) for the third quarter of the current year and prior year totaled $7.3 billion and $6.8 billion, respectively. The average loan growth during the third quarter of 2011 was driven entirely by commercial loans, which increased $210.5 million, or 4.51%, compared with the second quarter 2011 and increased $539.4 million, or 12.44%, compared with the third quarter of 2010.

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Specific changes in average loans outstanding, compared to the third quarter 2010, were as follows: commercial loans were up $539.4 million, or 12.44%; home equity loans were down $21.1 million, or 2.77%; mortgage loans were down $21.9 million, or 5.19%; installment loans, both direct and indirect declined $98.4 million, or 7.22%; leases decreased $1.3 million, or 2.26%; and credit card loans decreased $2.1 million, or 1.41%. Average covered loan balances including the indemnification asset were $1.7 billion, $2.0 billion, and $2.2 billion at September 30, 2011, December 31, 2010, and September 30, 2010, respectively. The covered loan portfolio will continue to decline through payoffs, charge offs, termination or expiration of loss share coverage unless the Corporation acquires additional loans subject to loss share agreements in the future. Average outstanding loans, including covered loans and loss share receivable, for the 2011 and 2010 third quarters equaled 71.26% and 73.83% of average earning assets, respectively.

Average deposits were $11.4 billion during the 2011 third quarter, up $21.9 million, or 0.19%, from the same period last year. For the quarter ended September 30, 2011, average core deposits (which are defined as checking accounts, savings accounts and money market savings products) increased $1.3 billion, or 15.53%, and represented 81.66% of total average deposits, compared to 70.82% for the 2010 third quarter. Average certificates of deposit (“CDs”) decreased $1.2 billion, or 37.03%, compared to the prior year. Average wholesale borrowings decreased $123.2 million, and as a percentage of total interest-bearing funds equaled 3.29% for the 2011 third quarter and 4.41% for the same quarter one year ago. Securities sold under agreements to repurchase remained flat, and as a percentage of total interest bearing funds equaled 9.94% for the 2011 third quarter and 9.22% for the 2010 third quarter. Average interest-bearing liabilities funded 75.70% of average earning assets in the current year quarter and 80.03% during the quarter ended September 30, 2010.

Other Income

Excluding investment gains, other income for the quarter ended September 30, 2011 totaled $56.4 million, an increase of $1.3 million from the $55.1 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 31.69%, compared to 30.50% for the same quarter one year ago.

Other income was $60.8 million for the third quarter of 2011, an increase of $9.3 million, or 18.06% from the second quarter of 2011 and an increase of $5.7 million or 10.34% from the third quarter of 2010. Activity in the quarter included net realized gains on the sale of investment securities of $4.4 million, offset by $3.3 million of MSR impairment which is reported as part of loan sales and servicing income. Service charges on deposits increased $2.1 million and ATM and other service fees increased $0.7 million, compared to the second quarter of 2011 due to recent product introductions and pricing. Included in other operating income is an increase of $2.1 million in the fair value of interest rate lock commitments from an increase in the mortgage pipeline as well as $2.7 million from gains on covered loans paid in full. The gain on covered loan payoffs represents the difference between the credit mark on the paid-off loans less the remaining associated indemnification asset.

Other Expenses

Other (non-interest) expenses totaled $116.0 million for the third quarter 2011 compared to $120.7 million for the same 2010 quarter, a decrease of $4.7 million, or 3.91%. Other (non-interest) expenses totaled $340.5 million for the nine months ended September 30, 2011 compared to $320.4 million for the nine months ended September 30, 2010, an increase of $20.1 million, or 6.26%. For the nine months ended September 30, 2011, compared with the nine months ended September 30, 2010, salaries, wages, pension and employee benefits increased $18.8 million or 11.84% and other operating expenses increased $4.4 million or 8.95% related to OREO and loan workout expense. These increases in expense were in part offset in the same comparable period by decreases in professional service fees of $4.2 million or 19.24% and the reserve for unfunded commitments of $5.0 million or 199.73%.

The efficiency ratio for the third quarter 2011 was 64.87%, compared to 66.26% during the same period in 2010. The efficiency ratio indicates the percentage of operating costs that are used to generate each dollar of net revenue - that is during the third quarter 2011, 64.87 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.

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Income Taxes

Income tax expense was $ 13.1 million and $ 10.3 million for the quarters ended September 30, 2011 and 2010, respectively. The effective income tax rate for the third quarter 2011 was 29.21%, compared to 26.14% for the same quarter in 2010.

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 $275.6 million of loans, and $42.0 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, as receiver of George Washington, to acquire deposits, loans, and certain other liabilities and certain assets of in a whole-bank acquisition of George Washington. The Bank acquired assets with a fair value of approximately $369.3 million, including $177.8 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 owned, and $408.4 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 loans and other real estate owned acquired are covered by loss share agreements between the Bank and the FDIC which afford the Bank significant protection against future losses. As part of the agreements, the Bank has recorded a loss share receivable from the FDIC that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to the Bank. The loss share receivable associated with the acquired covered loans was $88.7 million as of the date acquisition and is classified as part of covered loans in the consolidated balance sheets. The loss share receivable associated with the acquired other real estate owned was $11.3 million as of the date acquisition and is classified as part of other real estate covered by FDIC loss share in the consolidated balance sheets. The transaction resulted in a gain on acquisition of $1.0 million, which is included in noninterest income in the consolidated statements of income and comprehensive income. On July 10, 2010, the Corporation successfully completed the operational and technical migration of George Washington.

On May 14, 2010, the Bank entered into a purchase and assumption agreement with loss share with the FDIC, as receiver of Midwest, to acquire substantially all of the loans and certain other assets and assume substantially all of the deposits and certain liabilities in a whole-bank acquisition of Midwest. The Bank acquired assets with a fair value of approximately $3.2 billion, including $1.8 billion of loans, $564.2 million of investment securities, $279.4 million of cash and due from banks, $26.2 million in other real estate owned, and $3.0 billion in liabilities, including $2.3 billion of deposits. The Bank recorded a core deposit intangible asset of $7.4 million and has made a cash payment to the FDIC of approximately $227.5 million. The loans and other real estate owned acquired are covered by loss share agreements between the Bank and the FDIC which afford the Bank significant protection against future losses. As part of the agreements, the Bank has recorded a loss share receivable from the FDIC that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to the Bank. The loss share receivable associated with the acquired

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covered loans was $260.7 million as of the date acquisition and is classified as part of covered loans in the consolidated balance sheets. The loss share receivable associated with the acquired other real estate owned was $2.2 million as of the date acquisition and is classified as part of other real estate covered by FDIC loss share in the consolidated balance sheets. The transaction resulted in goodwill of $272.1 million. On October 9, 2010, the Corporation successfully completed the operational and technical migration of Midwest.

The three acquisitions of First Bank, George Washington and Midwest were considered business combinations and accounted for under FASB ASC 805. All acquired assets and liabilities were recorded at their estimated fair value. The one year measurement period for the three acquisitions expired before June 30, 2011. Material adjustments to acquisition date estimated fair values were recorded in the period in which the acquisition occurred and, as a result, previously reported results are subject to change. Certain reclassifications of prior periods’ amounts may also be made to conform to the current period’s presentation and would have no effect on previously reported net income amounts.

During the quarter ended March 31, 2011, the Corporation obtained additional information that resulted in changes to certain acquisition-data fair value estimates relating to the Midwest acquisition. These purchase accounting adjustments have resulted in a decrease to goodwill of approximately $19.1 million to $272.1 million as of the date of the acquisition, May 14, 2010. Prior period amounts appropriately reflect these adjustments.

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 September 30, 2011, total investment securities were $3.5 billion compared to $3.2 billion at December 31, 2010 and $3.3 billion at September 30, 2010. Available-for-sale securities were $3.2 billion at September 30, 2011 compared to $3.0 billion at December 31, 2010 and September 30, 2010. The 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. The increase in available-for-sale securities as of the third quarter of 2011 compared with the year ended December 31, 2010 is due to the purchase of $939.7 million of securities in the nine months ended September 30, 2011.

In the first half of 2011, the Corporation invested in mortgage-backed securities issued by the National Credit Union Administration and guaranteed by the U.S. Government with a book value at the end of the third quarter totaling $44.7 million. These securities are floating rate tied to one-month LIBOR with interest rate caps ranging from seven to eight percent. This portfolio had a market value of $44.8 million at September 30, 2011.

Held-to-maturity securities totaled $92.2 million at September 30, 2011 compared to $60.0 million at December 31, 2010 and $61.8 million at September 30, 2010 and consist principally of securities issued by state and political subdivisions.

Other investments totaled $160.8 million at September 30, 2011, December 31, 2010 and September 30, 2010 and consisted primarily of FHLB and FRB stock.

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Net unrealized gains were $86.4 million, $53.4 million and $86.7 million at September 30, 2011, December 31, 2010, and September 30, 2010, 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 OTTI. Only the credit portion of OTTI is to 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 $15.5 million, compared to $21.3 million as of December 31, 2010, and $15.7 million at September 30, 2010 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

Loans acquired under Loss Share Agreements with the FDIC include the amounts of expected reimbursements from the FDIC under these agreements and are presented as “covered loans” below. Loans not subject to Loss Share Agreements are presented below as “non-covered loans”. Total non-covered loans increased from prior quarter by $429.5 million or 5.96% and increased from September 30, 2010 by $552.5 million or 7.81%. While the Corporation is adding new commercial loans in both its core Ohio and newer Chicago, Illinois markets, low credit line utilization by existing customers is mitigating new loan production with respect to the overall portfolio balances.

Total covered loans, including the loss share receivable, decreased from prior quarter by $329.5 million or 16.67% and decreased from September 30, 2010 by $509.6 million or 23.63%. The covered loan portfolio will continue to decline, through payoffs, charge-offs, termination or expiration of loss share coverage, unless the Corporation acquires additional loans subject to loss share agreements in the future.

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	As of			As of			As of
	September 30,			December 31,			September 30,
	2011			2010			2010
				(In thousands)
Commercial loans	$	5,018,857		$	4,527,497		$	4,344,784
Mortgage loans		397,309			403,843			414,728
Installment loans		1,271,327			1,308,860			1,349,964
Home equity loans		743,377			749,378			760,816
Credit card loans		142,710			149,506			144,734
Leases		57,992			63,004			64,009
Total non-covered loans		7,631,572			7,202,088			7,079,035
Allowance for noncovered loan losses		(109,187	)		(114,690	)		(116,528	)
Net non-covered loans		7,522,385			7,087,398			6,962,507
Covered loans(*)		1,647,218			1,976,754			2,156,832
Allowance for covered loan losses		(34,603	)		(13,733	)		(3,437	)
Net covered loans		1,612,615			1,963,021			2,153,395
Net loans	$	9,135,000		$	9,050,419		$	9,115,902

* Includes loss share receivable of $239 million, $289 million and $342 million as of September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

The Corporation has approximately $5.3 billion of loans secured by real estate. Approximately 92.55% of the property underlying these loans is located within the Corporation’s primary market area of Ohio, Western Pennsylvania, and Chicago, Illinois.

Allowance for Loan Losses and Reserve for Unfunded Commitments

The Corporation maintains what Management believes is an adequate allowance for loan losses. The Corporation and the Bank regularly analyze the adequacy of this allowance through ongoing review of trends in risk ratings, delinquencies, nonperforming assets, charge-offs, economic conditions, and changes in the composition of the loan portfolio. Notes 1 (Summary of Significant Accounting Polices) and 4 (Loans and Allowance for Loan Losses) in 2010 Form 10-K provide detailed information regarding the Corporation’s credit policies and practices.

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

Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio’s collectability characteristics not captured by historical loss data.

Acquired loans are recorded at acquisition date at their acquisition date fair values, and, therefore, are excluded from the calculation of loan loss reserves as of the acquisition date. To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any Loss Share Agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the quarter ended September 30, 2011, the Corporation increased its allowance for covered loan losses to $34.6 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded by a charge to the provision for covered loan losses of $13.0 million and an increase of $8.2 million in the loss share receivable for the portion of the losses recoverable under the Loss Share Agreements.

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For acquired loans that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under any Loss Share Agreements, exceeds any remaining credit discounts. The Corporation recognized a provision for loan losses on Acquired Non-Impaired Loans of $0.3 million in the quarter ended September 30, 2011.

At September 30, 2011, the allowance for loan losses on noncovered loans was $109.2 million, or 1.46% of loans outstanding, excluding acquired loans, compared to $114.7 million, or 1.65%, at year-end 2010 and $116.5 million, or 1.72%, for the quarter ended September 30, 2010. The allowance equaled 160.00% of nonperforming loans at September 30, 2011, compared to 109.56% at year-end 2010, and 111.00% for September 30, 2010. During 2008, additional reserves were established to address identified risks associated with the slowdown in the housing markets and the decline in residential and commercial real estate values. These reserves totaled $11.9 million, $13.4 million, and $11.0 million at September 30, 2011, December 31, 2010, and September 30, 2010, 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 decreased by $36.8 million over September 30, 2010, and $36.5 million over December 31, 2010 primarily attributable to the improving economic conditions.

Net charge-offs on noncovered loans were $14.6 million for the third quarter ended 2011 compared to $84.2 million for year-end 2010 and $19.9 million in the third quarter ended 2010. As a percentage of average loans outstanding, excluding acquired loans, net charge-offs equalled 0.79%, 1.23%, and 1.17% for September 30, 2011, December 31, 2010, and September 30, 2010, respectively. Losses are charged against the allowance for loan losses as soon as they are identified.

The allowance for unfunded lending commitments at September 30, 2011, December 31, 2010, and September 30, 2010 was $6.4 million, $8.8 million and $7.9 million, respectively. The allowance for credit losses, which includes both the allowance for loan losses and the reserve for unfunded lending commitments, amounted to $115.5 million at third quarter-end 2011, $123.5 million at year-end 2010 and $124.4 million at third quarter-end 2010.

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.

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	Quarter ended September 30, 2011			Year Ended December 31, 2010			Quarter ended September 30, 2010
				(In thousands)
Allowance for Noncovered Loan Losses
Allowance for loan losses-beginning of period	$	109,187		$	115,092		$	118,343
Provision for loan losses		14,604			83,783			18,108
Net charge-offs		(14,604	)		(84,185	)		(19,923	)
Allowance for loan losses-end of period	$	109,187		$	114,690		$	116,528
Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	5,799		$	5,751		$	6,812
Provision for credit losses		561			3,098			1,052
Balance at end of period	$	6,360		$	8,849		$	7,864
Allowance for credit losses	$	115,547		$	123,539		$	124,392
Annualized net charge-offs as a % of average loans		0.79	%		1.23	%		1.17	%
Allowance for noncovered loan losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.46	%		1.65	%		1.72	%
As a percentage of nonperforming loans		160.09	%		109.56	%		111.00	%
As a multiple of annualized net charge offs		1.88x			1.36x			1.47x
Allowance for credit losses:
As a percentage of period-end loans, excluding acquired loans (a)		1.55	%		1.78	%		1.84	%
As a percentage of nonperforming loans		169.42	%		118.01	%		118.49	%
As a multiple of annualized net charge offs		1.99x			1.47x			1.57x

(a) Excludes loss share receivable

The allowance for credit losses decreased $8.0 million from December 31, 2010 to September 30, 2011, and decreased $8.8 million from September 30, 2010 to September 30, 2011.

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

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	At September 30, 2011
	Loan Type
Allowance for Loan Losses Components:	C&I		CRE and Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	4,008	$	42,782	$	—	$	—	$	—	$	—	$	—	$	46,790
Allowance		194		2,806		—		493		—		—		945		4,438
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		48,173		12,728		—										60,901
Grade 1 allowance		15		—		4										19
Grade 2 loan balance		100,058		4,463		—										104,521
Grade 2 allowance		116		12		—										128
Grade 3 loan balance		487,017		263,823		4,219										755,059
Grade 3 allowance		871		1,155		7										2,033
Grade 4 loan balance		1,926,066		1,656,739		53,771										3,636,576
Grade 4 allowance		20,482		17,728		314										38,524
Grade 5 (Special Mention) loan balance		49,251		78,666		2										127,919
Grade 5 allowance		3,153		3,826		—										6,979
Grade 6 (Substandard) loan balance		43,417		148,888		—										192,305
Grade 6 allowance		5,506		14,589		—										20,095
Grade 7 (Doubtful) loan balance		—		715		—										715
Grade 7 allowance		—		—		—										—
Consumer loans based on payment status:
Current loan balances								1,249,676		718,494		140,016		375,706		2,483,892
Current loans allowance								15,015		4,542		5,998		4,225		29,780
30 days past due loan balance								9,090		2,474		1,222		9,687		22,473
30 days past due allowance								1,151		548		633		538		2,870
60 days past due loan balance								4,225		731		701		2,412		8,069
60 days past due allowance								1,274		399		546		346		2,565
90+ days past due loan balance								5,052		922		771		7,648		14,393
90+ days past due allowance								883		754		819		737		3,193
Total loans	$	2,657,990	$	2,208,804	$	57,992	$	1,268,043	$	722,621	$	142,710	$	395,453	$	7,453,613
Total Allowance for Loan Losses	$	30,338	$	40,116	$	325	$	18,323	$	6,243	$	7,996	$	5,846	$	109,187

Total loans exclude acquired loans, including covered loans.

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	At December 31, 2010
	Loan Type
Allowance for Loan Losses Components:	C&I		CRE and Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	5,675	$	77,547	$	—	$	—	$	—	$	—	$	—	$	83,222
Allowance		—		5,228		—		—		—		—		—		5,228
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		66,802		16,688		8,069										91,559
Grade 1 allowance		38		—		8										46
Grade 2 loan balance		64,740		11,162		—										75,902
Grade 2 allowance		93		29		—										122
Grade 3 loan balance		260,351		318,260		11,414										590,025
Grade 3 allowance		694		1,214		35										1,943
Grade 4 loan balance		1,471,255		1,598,023		43,210										3,112,488
Grade 4 allowance		18,113		15,875		415										34,403
Grade 5 (Special Mention) loan balance		61,284		95,209		311										156,804
Grade 5 allowance		2,814		3,749		17										6,580
Grade 6 (Substandard) loan balance		55,720		187,590		—										243,310
Grade 6 allowance		8,012		13,111		—										21,123
Grade 7 (Doubtful) loan balance		2		—		—										2
Grade 7 allowance		—		—		—										—
Consumer loans based on payment status:
Current loan balances								1,279,307		722,351		145,624		375,022		2,522,304
Current loans allowance								16,597		5,472		8,148		3,621		33,838
30 days past due loan balance								14,486		2,500		1,570		10,574		29,130
30 days past due allowance								1,954		668		871		408		3,901
60 days past due loan balance								4,491		755		975		1,665		7,886
60 days past due allowance								1,643		441		759		194		3,037
90+ days past due loan balance								7,059		744		1,337		14,815		23,955
90+ days past due allowance								1,361		636		1,329		1,143		4,469
Total loans	$	1,985,829	$	2,304,479	$	63,004	$	1,305,343	$	726,350	$	149,506	$	402,076	$	6,936,587
Total Allowance for Loan Losses	$	29,764	$	39,206	$	475	$	21,555	$	7,217	$	11,107	$	5,366	$	114,690

Total loans exclude acquired loans, including covered loans.

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At September 30, 2010

	Loan Type
Allowance for Loan Losses Components:	C&I		CRE and Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
(In thousands)
Individually Impaired Loan Component:
Loan balance	$	7,752	$	71,851	$	—	$	—	$	—	$	—	$	—	$	79,603
Allowance		1,080		7,494		—		—		—		—		—		8,574
Collective Loan Impairment Components:
Credit risk-graded loans
Grade 1 loan balance		54,039		1,635		7,967										63,641
Grade 1 allowance		37		—		7										44
Grade 2 loan balance		69,994		14,278		—										84,272
Grade 2 allowance		106		29		—										135
Grade 3 loan balance		266,523		393,783		12,927										673,233
Grade 3 allowance		625		1,039		39										1,703
Grade 4 loan balance		1,181,783		1,689,822		42,671										2,914,276
Grade 4 allowance		10,356		14,418		413										25,187
Grade 5 (Special Mention) loan balance		60,323		75,672		444										136,439
Grade 5 allowance		2,617		3,347		23										5,987
Grade 6 (Substandard) loan balance		61,427		120,628		—										182,055
Grade 6 allowance		7,040		13,900		—										20,940
Grade 7 (Doubtful) loan balance		163		55		—										218
Grade 7 allowance		12		3		—										15
Consumer loans based on payment status:
Current loan balances								1,328,720		734,734		140,742		379,593		2,583,789
Current loans allowance								19,916		5,990		9,614		4,296		39,816
30 days past due loan balance								10,152		3,280		1,444		10,819		25,695
30 days past due allowance								1,702		972		945		508		4,127
60 days past due loan balance								3,770		1,033		1,082		4,532		10,417
60 days past due allowance								1,759		665		1,000		666		4,090
90+ days past due loan balance								2,373		840		1,466		17,781		22,460
90+ days past due allowance								1,880		837		1,720		1,473		5,910
Total loans	$	1,702,004	$	2,367,724	$	64,009	$	1,345,015	$	739,887	$	144,734	$	412,725	$	6,776,098
Total Allowance for Loan Losses	$	21,873	$	40,230	$	482	$	25,257	$	8,464	$	13,279	$	6,943	$	116,528

Total loans exclude acquired loans, including covered loans

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 2010 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.

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 favour of the borrower or either principal or interest has been forgiven.

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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 favour of the borrower or either principal or interest has been forgiven.

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

(Dollars in thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Nonperforming commercial loans	$	59,928		$	89,828		$	91,646
Other nonaccrual loans:		8,275			14,859			13,331
Total nonperforming loans		68,203			104,687			104,977
Other real estate (“ORE”)		22,172			18,815			10,290
Total nonperforming assets	$	90,375		$	123,502		$	115,267
Loans past due 90 day or more accruing interest	$	6,268		$	22,017		$	36,895
Total nonperforming assets as a percentage of total loans and ORE		1.21	%		1.78	%		1.70	%

Commercial nonperforming loans decreased $29.9 million from December 31, 2010 and $31.7 million from September 30, 2010 reflecting movement of assets for disposition into other real estate along with loan payments. New nonperforming commercial loans have continued to decline from December 31, 2010 through September 30, 2011. Total other real estate increased $3.4 million from December 31, 2010 and increased $11.9 million from September 30, 2010, reflecting economic stress. While Management expects ORE balances to remain elevated reflecting post economic stress, Management expects that inflows will slow over the course of 2011.

The consumer portfolio is stable and improving. 30 day delinquency levels within the portfolio have decreased by $19.2 million or 30.48% compared to the quarter ending December 31, 2010 and decreased $17.2 million or 28.26% compared to the quarter ended September 30, 2010. Delinquency trends are observable in the Allowance for Loan Loss Allocation tables within this section. Additionally the overall consumer portfolio has decreased by $69.3 million or 2.65% compared to the quarter ending December 31, 2010 and decreased $167.2 million or 6.17% compared to the quarter ended September 30, 2010. Average FICO scores on the consumer portfolio subcomponents are excellent with average scores on installment loans at 716, home equity lines at 775, residential mortgages at 746 and credit cards at 765. Net charge offs within the consumer portfolio were $7.8 million, down $1.9 million from the quarter ended June 30, 2011, and down $5.2 million from the quarter ended September 30, 2010. Annualized net charge offs on the total consumer portfolio were 1.16% in the quarter ended September 30, 2011 compared to 1.82% in the quarter ended September 30, 2010.

In September 30, 2011 and December 31, 2010 nonperforming assets, other real estate includes $0.6 million and $0.8 million, respectively, of vacant land no longer considered for branch expansion which are not related to loan portfolios.

Commercial criticized loans decreased $48.6 million from December 31, 2010, and $46.2 million from September 30, 2010.

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See Note 1 (Summary of Significant Accounting Policies) of the 2010 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:

	Quarters Ended
	September 30, 2011			June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010
	(In thousands)
Nonaccrual commercial loans beginning of period	$	63,688		$	71,246		$	89,828		$	91,646		$	84,535
Credit Actions:
New		9,232			5,219			7,876			20,385			19,625
Loan and lease losses		(5,047	)		(4,469	)		(4,717	)		(5,750	)		(6,381	)
Charged down		(3,987	)		(3,877	)		(3,207	)		(7,679	)		(4,139	)
Return to accruing status		(38	)		(334	)		(524	)		(1,829	)		(200	)
Payments		(3,920	)		(4,097	)		(18,009	)		(6,945	)		(1,795	)
Nonaccrual commercial loans end of period	$	59,928		$	63,688		$	71,246		$	89,828		$	91,646

In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered. Concessionary modifications are classified as TDRs unless the modification is short-term (30 to 90 days). All amounts due, including interest accrued at the contractual interest rate, are expected to be collected TDRs return to accrual status once the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. A sustained period of repayment performance would be a minimum of six consecutive payment cycles from the date of restructure.

Our TDR portfolio, excluding Covered Loans, is predominately composed of consumer installment loans, first and second lien residential mortgages and home equity lines of credit which total, in aggregate, $57.8 million or 44.47% of our total TDR portfolio as of September 30, 2011. We restructure residential mortgages in a variety of ways to help our clients remain in their homes and to mitigate the potential for additional losses. The primary restructuring methods being offered to our residential clients are reductions in interest rates and extensions in terms. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by Loss Share Agreements. The Corporation participates in the U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac.

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

Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools.

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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 September 30, 2011					Year Ended December 31, 2010					Quarter Ended September 30, 2010
	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
	(Dollars in thousands)
Non-interest DDA	$	2,988,521		—		$	2,550,849		—		$	2,730,483		—
Interest-bearing DDA		913,252		0.09	%		794,497		0.09	%		858,168		0.10	%
Savings and money market accounts		5,446,351		0.50	%		4,303,815		0.74	%		4,502,779		0.72	%
CDs and other time deposits		2,099,558		0.83	%		2,801,270		1.17	%		3,334,311		1.15	%
Total customer deposits		11,447,682		0.40	%		10,450,431		0.63	%		11,425,741		0.63	%
Securities sold under agreements to repurchase		969,020		0.40	%		907,015		0.49	%		928,607		0.42	%
Wholesale borrowings		320,691		2.06	%		510,799		2.74	%		443,890		2.44	%
Total funds	$	12,737,393				$	11,868,245				$	12,798,238

Average demand deposits comprised 34.08% of average deposits in the 2011 third quarter compared to 31.41% in the 2010 third quarter. Savings accounts, including money market products, made up 47.58% of average deposits in the 2011 third quarter compared to 39.41% in the 2010 third quarter. CDs made up 18.34% of average deposits in the third quarter 2011 and 29.18% in the third quarter 2010.

The average cost of deposits, securities sold under agreements to repurchase and wholesale borrowings was down 60 basis points compared to one year ago, or 0.11% for the quarter ended September 30, 2011.

The following table summarizes CDs of $100 thousand or more (“Jumbo CDs”) as of September 30, 2011, by time remaining until maturity:

Time until maturity:	Amount
	(In thousands)
Under 3 months	$	189,335
3 to 6 months		91,328
6 to 12 months		191,683
Over 1 year through 3 years		152,859
Over 3 years		34,188
	$	659,393

Capital Resources

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

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Shareholder’s Equity

Shareholders’ equity at September 30, 2011 totaled $1.6 billion compared to $1.5 billion at December 31, 2010 and September 30, 2010. The cash dividend of $0.16 per share paid in the third quarter has an indicated annual rate of $0.64 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 7.75% at September 30, 2011, compared to 7.59% at December 31, 2010, and 7.54% at September 30, 2010.

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 and Midwest FDIC-assisted transactions, which were accounted for as business combinations, 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 September 30, 2011, the Corporation, on a consolidated basis, as well as FirstMerit Bank, exceeded the minimum capital levels of the well capitalized category.

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	September 30, 2011				December 31, 2010				September 30, 2010
	(Dollars in thousands)
Consolidated
Total equity	$	1,570,654	10.69	%	$	1,507,715	10.67	%	$	1,517,892	10.57	%
Common equity		1,570,654	10.69	%		1,507,715	10.67	%		1,517,892	10.57	%
Tangible common equity (a)		1,101,828	7.75	%		1,037,260	7.59	%		1,046,432	7.54	%
Tier 1 capital (b)		1,104,869	11.02	%		1,061,466	11.57	%		1,049,484	11.46	%
Total risk-based capital (c)		1,230,519	12.27	%		1,176,429	12.82	%		1,164,078	12.72	%
Leverage (d)		1,104,869	7.86	%		1,061,466	7.61	%		1,049,484	7.48	%
Bank Only
Total equity	$	1,487,926	10.14	%	$	1,421,123	10.07	%	$	1,432,073	9.99	%
Common equity		1,487,926	10.14	%		1,421,123	10.07	%		1,432,073	9.99	%
Tangible common equity (a)		1,019,100	7.18	%		950,668	6.97	%		960,613	6.93	%
Tier 1 capital (b)		1,017,738	10.17	%		970,566	10.58	%		959,516	10.50	%
Total risk-based capital (c)		1,138,725	11.38	%		1,081,203	11.79	%		1,069,715	11.71	%
Leverage (d)		1,017,738	7.26	%		970,566	6.90	%		959,516	6.78	%

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 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

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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 2010 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 September 30, 2011 and 2010:

	Immediate Change in Rates and Resulting  Percentage Increase/(Decrease) in Net Interest Income:
	- 100 basis points			+ 100 basis points			+ 200 basis points			+ 300 basis points
September 30, 2011		(3.06	%)		2.79	%		3.92	%		4.81	%
September 30, 2010		*			1.87	%		3.46	%		4.54	%

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

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

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

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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 September 30, 2011 and 2010:

	Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:
	- 100 basis points			+ 100 basis points			+ 200 basis points			+ 300 basis points
September 30, 2011		0.18	%		4.77	%		7.01	%		7.89	%
September 30, 2010		*			4.18	%		5.87	%		5.57	%

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

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

Management of interest rate exposure. Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of the Corporation’s capital and liquidity guidelines. Specifically, Management actively manages interest rate risk positions by using derivatives predominately in the form of interest rate swaps, which modify the interest rate characteristics of certain assets and liabilities. For more information about how the Corporation uses interest rate swaps to manage its balance sheet, see Note 9 (Derivatives and Hedging Activities) to the unaudited consolidated financial statements included in this report.

Liquidity Risk Management

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

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

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch system. Core deposits comprised approximately 82.95% of total deposits at September 30, 2011. The Corporation also has available unused wholesale sources of liquidity, including advances from the FHLB of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposit issued through brokers. Liquidity is further enhanced by an excess reserve position that averaged greater than one half billion dollars through the third quarter of 2011 in addition to unencumbered, or unpledged, investment securities that totaled $1.1 billion as of September 30, 2011.

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The treasury group also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress. An example of an institution specific event would be a downgrade in the Corporation’s public credit rating by a rating agency due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures, or a significant merger or acquisition. Examples of systemic events unrelated to the Corporation that could have an effect on its access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about the Corporation or the banking industry in general may adversely affect the cost and availability of normal funding sources. The liquidity contingency plan therefore outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

Funding Trends for the Quarter -During the three months ended September 30, 2011, lower cost core deposits an increase by $360.6 billion from the previous quarter. In aggregate, deposits increased $55.2 billion. Securities sold under agreements to repurchase increased $177.5 million from June 30, 2011. Wholesale borrowings decreased $77.1 million from June 30, 2011. The Corporation’s loan to deposit ratio increased to 81.42% at September 30, 2011 from 80.80% at June 30, 2011.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the bank subsidiary. The parent company has sufficient liquidity to service its debt; support customary corporate operations and activities (including acquisitions) at a reasonable cost, in a timely manner and without adverse consequences; and pay dividends to shareholders.

During the quarter ended September 30, 2011, FirstMerit Bank did pay dividends to FirstMerit Corporation. As of September 30, 2011, FirstMerit Bank had an additional $183.6 million available to pay dividends without regulatory approval.

Recent Market and Regulatory Developments. In response to the current national and international economic recession, and in efforts to stabilize and strengthen the financial markets and banking industries, the United States Congress and governmental agencies have taken a number of significant actions over the past several years, including the passage of legislation and implementation of a number of programs. The most recent of these actions was the passage into law, on July 21, 2010, of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The Dodd-Frank Act is the most comprehensive change to banking laws and the financial regulatory environment since the Great Depression of the 1930s. The Dodd-Frank Act affects almost every aspect of the nation’s financial services industry and mandates change in several key areas, including regulation and compliance (both with respect to financial institutions and systemically important nonbank financial companies), securities regulation, executive compensation, regulation of derivatives, corporate governance, and consumer protection.

In this respect, it is noteworthy that preemptive rights heretofore granted to national banking associations by the Office of the Comptroller of the Currency (“OCC”) under the National Bank Act will diminish with respect to consumer financial laws and regulations. Thus, Congress has authorized states to enact their own substantive protections and to allow state attorneys general to initiate civil actions to enforce federal consumer protections. In this respect, the Corporation will be subject to regulation by a new consumer protection bureau known as the Bureau of Consumer Financial Protection (the “Bureau”) under the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bureau will consolidate enforcement

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currently undertaken by myriad financial regulatory agencies, and will have substantial power to define the rights of consumers and responsibilities of providers, including the Corporation.

In addition, and among many other legislative changes as a result of the Dodd-Frank Act that the Corporation will assess, the Corporation (1) experienced a new assessment model from the FDIC based on assets, not deposits, (2) will be subject to enhanced executive compensation and corporate governance requirements, and (3) will be able, for the first time to offer interest on business transaction and other accounts.

The extent to which the Dodd-Frank Act and initiatives thereunder will succeed in addressing the credit markets or otherwise result in an improvement in the national economy is not yet known. In addition, because most aspects of this legislation will be subject to intensive agency rulemaking and subsequent public comment prior to implementation, it is difficult to predict at this time the ultimate effect of the Dodd-Frank Act on the Corporation. It is likely, however, that the Corporation’s expenses will increase as a result of new compliance requirements.

In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) released its final framework for strengthening international capital and liquidity regulation (“Basel III”). Minimum global liquidity standards under Basel III are meant to ensure banks maintain adequate levels of liquidity on both a short and medium to longer horizon. Expected liquidity standard implementation dates are January 1, 2015 and January 1, 2018. When implemented by the federal banking agencies and fully phased-in, Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. When fully phased in on January 1, 2019, Basel III will require banking institutions to maintain heightened Tier 1 common equity, Tier 1 capital and total capital ratios, as well as maintaining a “capital conservation buffer.” Regulations by the federal banking agencies implementing Basel III are expected to be proposed in mid-2011, with adoption of final implementing regulations in mid-2012. Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering further amendments to Basel III, including imposition of additional capital surcharges on globally systemically important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the regulations ultimately applicable to the Corporation may differ substantially from the currently published final Basel III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Corporation’s net income and return on equity.

Various legislation affecting financial institutions and the financial industry will likely continue to be introduced in Congress, and such legislation may further change banking statutes and the operating environment of the Corporation and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Corporation or any of its subsidiaries. With the enactment of the Dodd-Frank Act, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

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

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 2010 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

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these areas appears within Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2010 Form 10-K.

Off-Balance Sheet Arrangements

A detailed discussion of the Corporation’s off-balance sheet arrangements, including interest rate swaps, forward sale contracts, mortgage loan commitments, and TBA Securities is included in Note 9 (Derivatives and Hedging Activities) to the Corporation’s consolidated financial statements included in this report and in Note 17 to the 2010 Form 10-K. There have been no significant changes since December 31, 2010.

Forward-looking Safe-harbor Statement

Discussions in this report that are not statements of historical fact (including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “project,” intend,” and “plan”) are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Corporation’s filings with the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors,” of the 2010 Form 10-K.

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors, general and local economic and business conditions; recession or other economic downturns, expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; recent and future legislative and regulatory developments; natural disasters; effectiveness of the Corporation’s hedging practices; technology; demand for the Corporation’s product offerings; new products and services in the industries in which the Corporation operates; and critical accounting estimates. Other factors are those inherent in originating, selling and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the SEC, the FASB, the OCC, the Federal Reserve System, Financial Industry Regulatory Authority (FINRA), and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to the Corporation including the costs of complying with any such laws and regulations; and the Corporation’s success in executing its business plans and strategies 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.

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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.

Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Corporation’s disclosure controls and procedures are effective.

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

In the normal course of business, the Corporation is 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.

For additional information on litigation, see Note 13 (Contingencies and Guarantees) to the consolidated financial statements.

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final Basel III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Corporation’s net income and return on equity.

ITEM 1A. RISK FACTORS.

There have been no material changes in our risk factors from those disclosed in the 2010 Form 10-K.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table provides information with respect to purchases the Corporation made of shares of its common stock during the third quarter of the 2011 fiscal year:

	Total Number of Shares  Purchased (1)		Average Price Paid per  Share		Total Number of Shares  Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number of  Shares that May Yet Be Purchased Under Plans or Programs (2)
Balance as of June 30, 2011								396,272
July 1, 2011 - July 31, 2011		2,187	$	19.48		—		396,272
August 1, 2011 - August 31, 2011		2,612		20.64		—		396,272
September 1, 2011 - September 30, 2011		4,957		24.06		—		396,272
Balance as of September 30, 2011		9,756	$	22.12		—		396,272

(1) Reflects 9,756 shares of common stock purchased as a result of either: (1) delivered by the option holder with respect to the exercise of stock options; (2) shares withheld to pay income taxes or other tax liabilities associated with vested restricted shares of common stock; or (3) shares returned upon the resignation of the restricted shareholder. No shares were purchased under the program referred to in note (2) to this table during the third quarter of 2011.

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

(3)

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.

Exhibit Index

Exhibit Number	Description
3.1	Second Amended and Restated Articles of Incorporation of FirstMerit Corporation, as amended (incorporated by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 000-10161) filed by FirstMerit Corporation on May 10, 2010).
3.2	Second Amended and Restated Code of Regulations of FirstMerit Corporation, as amended (incorporated by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 000-10161) filed by FirstMerit Corporation on May 10, 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.
101*	The following materials from FirstMerit Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income and Comprehensive Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text.

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

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SIGNATURES

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

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

November 1, 2011