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| FMER > SEC Filings for FMER > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential
Three months ended Year ended Three months ended
FIRSTMERIT CORPORATION AND September 30, 2009 December 31, 2008 September 30, 2008
SUBSIDIARIES Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Cash and due from banks $ 159,985 $ 177,089 $ 171,370
Investment securities and
federal funds sold:
U.S. Treasury securities
and U.S.
Government agency
obligations (taxable) 2,210,551 24,115 4.33 % 1,985,026 94,260 4.75 % 1,943,589 23,374 4.78 %
Obligations of states and
political subdivisions
(tax exempt) 318,853 4,872 6.06 % 294,724 17,910 6.08 % 301,688 4,575 6.03 %
Other securities and
federal funds sold 199,028 2,049 4.08 % 216,794 11,326 5.22 % 216,154 2,780 5.12 %
Total investment
securities and federal
funds sold 2,728,432 31,036 4.51 % 2,496,544 123,496 4.95 % 2,461,431 30,729 4.97 %
Loans held for sale 17,357 230 5.26 % 29,419 1,602 5.45 % 12,048 178 5.88 %
Loans 7,057,021 84,107 4.73 % 7,203,946 434,704 6.03 % 7,282,333 107,781 5.89 %
Total earning assets 9,802,810 115,373 4.67 % 9,729,909 559,802 5.75 % 9,755,812 138,688 5.66 %
Allowance for loan losses (111,073 ) (96,714 ) (98,091 )
Other assets 777,637 739,158 740,405
Total assets $ 10,629,359 $ 10,549,442 $ 10,569,496
|
LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - non-interest bearing $ 1,947,359 - - $ 1,530,021 - - $ 1,545,427 - - Demand - interest bearing 647,712 137 0.08 % 687,160 2,514 0.37 % 678,803 589 0.35 % Savings and money market accounts 2,916,980 5,763 0.78 % 2,398,778 29,839 1.24 % 2,373,995 6,932 1.16 % Certificates and other time deposits 1,872,456 12,284 2.60 % 2,801,623 105,853 3.78 % 2,728,139 23,463 3.42 % Total deposits 7,384,507 18,184 0.98 % 7,417,582 138,206 1.86 % 7,326,364 30,984 1.68 % Securities sold under agreements to repurchase 1,087,875 1,286 0.47 % 1,343,441 31,857 2.37 % 1,504,011 8,244 2.18 % Wholesale borrowings 883,377 6,824 3.06 % 663,109 27,574 4.16 % 634,226 6,801 4.27 % Total interest bearing liabilities 7,408,400 26,294 1.41 % 7,894,111 197,637 2.50 % 7,919,174 46,029 2.31 % Other liabilities 234,776 189,222 175,400 Shareholders' equity 1,038,824 936,088 929,495 Total liabilities and shareholders' equity $ 10,629,359 $ 10,549,442 $ 10,569,496 Net yield on earning assets $ 9,802,810 89,079 3.61 % $ 9,729,909 362,165 3.72 % $ 9,755,812 92,659 3.78 % Interest rate spread 3.26 % 3.25 % 3.35 % |
Note: Interest
income on
tax-exempt
securities
and loans has
been adjusted
to a
fully-taxable
equivalent
basis.
Nonaccrual
loans have
been included
in the
average
balances.
AVERAGE CONSOLIDATED BALANCE SHEETS (Unaudited)
Fully-tax Equivalent Interest Rates and Interest Differential
FIRSTMERIT CORPORATION AND Nine months ended Year ended Nine months ended
SUBSIDIARIES September 30, 2009 December 31, 2008 September 30, 2008
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Cash and due from banks $ 188,010 $ 177,089 $ 171,812
Investment securities and
federal funds sold:
U.S. Treasury securities
and U.S.
Government agency
obligations (taxable) 2,222,119 74,524 4.48 % 1,985,026 94,260 4.75 % 1,989,648 70,276 4.72 %
Obligations of states and
political
subdivisions (tax exempt) 318,825 14,696 6.16 % 294,724 17,910 6.08 % 287,507 13,106 6.09 %
Other securities and
federal funds sold 207,938 6,594 4.24 % 216,794 11,326 5.22 % 217,776 8,607 5.28 %
Total investment
securities and federal
funds sold 2,748,882 95,814 4.66 % 2,496,544 123,496 4.95 % 2,494,931 91,989 4.93 %
Loans held for sale 20,395 829 5.43 % 29,419 1,602 5.45 % 36,310 1,501 5.52 %
Loans 7,227,077 257,619 4.77 % 7,203,946 434,704 6.03 % 7,149,451 329,314 6.15 %
Total earning assets 9,996,354 354,262 4.74 % 9,729,909 559,802 5.75 % 9,680,692 422,804 5.83 %
Allowance for loan losses (106,190 ) (96,714 ) (95,309 )
Other assets 794,893 739,158 731,689
Total assets $ 10,873,067 $ 10,549,442 $ 10,488,884
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LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - non-interest bearing $ 1,869,669 - - $ 1,530,021 - - $ 1,503,871 - - Demand - interest bearing 658,048 451 0.09 % 687,160 2,514 0.37 % 696,881 2,144 0.41 % Savings and money market accounts 2,789,455 16,592 0.80 % 2,398,778 29,839 1.24 % 2,353,140 23,075 1.31 % Certificates and other time deposits 2,229,694 46,197 2.77 % 2,801,623 105,853 3.78 % 2,778,077 82,037 3.94 % Total deposits 7,546,866 63,240 1.12 % 7,417,582 138,206 1.86 % 7,331,969 107,256 1.95 % Securities sold under agreements to repurchase 991,926 3,496 0.47 % 1,343,441 31,857 2.37 % 1,402,201 28,105 2.68 % Wholesale borrowings 1,017,330 21,064 2.77 % 663,109 27,574 4.16 % 628,441 20,133 4.28 % Total interest bearing liabilities 7,686,453 87,800 1.53 % 7,894,111 197,637 2.50 % 7,858,740 155,494 2.64 % Other liabilities 273,116 189,222 188,068 Shareholders' equity 1,043,829 936,088 938,205 Total liabilities and shareholders' equity $ 10,873,067 $ 10,549,442 $ 10,488,884 Net yield on earning assets $ 9,996,354 266,462 3.56 % $ 9,729,909 362,165 3.72 % $ 9,680,692 267,310 3.69 % Interest rate spread 3.21 % 3.25 % 3.19 % |
Note: Interest
income on
tax-exempt
securities
and loans has
been adjusted
to a
fully-taxable
equivalent
basis.
Nonaccrual
loans have
been included
in the
average
balances.
SUMMARY
FirstMerit Corporation reported third quarter 2009 net income of
$22.8 million, or $0.27 per diluted share. This compares with $15.5 million, or
$0.13 per diluted share, for the second quarter 2009 and $29.8 million, or $0.36
per diluted share, for the third quarter 2008. Earnings per share for all
periods presented have been restated to reflect stock dividends declared on
April 28, 2009 and August 20, 2009.
Returns on average common equity ("ROE") and average assets ("ROA") for the
third quarter 2009 were 8.69% and 0.85%, respectively, compared with 6.27% and
0.57% for the second quarter 2009 and 12.73% and 1.12% for the third quarter
2008. Included in the second quarter 2009 results was a $3.7 million after-tax
Federal Deposit Insurance Corporation ("FDIC") Special Assessment fee ($0.04 per
share). Also included in the second quarter 2009 results was a $4.5 million
after-tax expense ($0.06 per share) associated with the unamortized discount on
the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued under the
TARP program.
Net interest margin was 3.61% for the third quarter of 2009, compared with
3.56% for the second quarter of 2009 and 3.78% for the third quarter of 2008.
The margin expansion in the quarter was primarily driven by lower funding costs
due to a continued shift in deposit mix with increased emphasis on core deposit
products and lower certificate of deposit balances.
Average loans during the third quarter of 2009 decreased $189.7 million, or
2.62%, compared to the second quarter of 2009 and decreased $225.3 million, or
3.09%, compared with the third quarter of 2008. The fluctuation from second
quarter 2009 to third quarter 2009 was due to decreases in commercial loans of
$157.3 million, or 3.69%, mortgage loans of $21.9 million, or 4.26%, and
installment loans of $20.9 million, or 1.38%. The decrease in the third quarter
2009 as compared to third quarter 2008 was due to decreases in commercial loans
of $63.2 million, or 1.52%, mortgage loans of $77.2 million, or 13.56%, and
installment loans of $125.2 million, or 7.74%. The decrease in average loan
volume over both periods reflects the current economic cycle in which business
owners and consumers are retrenching on their demand for leverage and borrowing.
Business customers continue their trend in inventory and receivable reduction
and paying down existing debt to strengthen their balance sheets. Consumer
customers are taking a similar approach with lower borrowing demand and
increased usage of short-term savings products.
Average deposits during the third quarter of 2009 decreased $230.3 million,
or 3.02%, compared with the second quarter of 2009 and increased $58.1 million,
or 0.79%, compared with the third quarter of 2008. During the third quarter of
2009, the Corporation increased its average core deposits, which excludes time
deposits, by $138.9 million, or 2.58%, compared with the second quarter of 2009,
and $913.8 million, or 19.87%, compared with the third quarter of 2008. These
results reflect the Corporation's continued success in growing core deposit
relationships and deemphasizing a reliance on higher-cost certificate of deposit
accounts. The core deposit growth reflects the Corporation's success in building
a strong brand name in its core markets and capitalizing on market disruption in
northeast Ohio.
Average investments decreased $5.4 million, or 0.20%, compared with the
second quarter of 2009 and increased $270.7 million, or 11.01%, over the third
quarter of 2008. The year-over-year increase is a result of the leverage
strategy implemented in the fourth quarter of 2008.
Net interest income on a fully tax-equivalent ("FTE") basis was $89.1 million
in the third quarter 2009 compared with $88.8 million in the second quarter of
2009 and $92.7 million in the third quarter of 2008. Compared with the second
quarter of 2009, average earning assets decreased $198.5 million, or 1.98%, and
increased $47.0 million, or 0.48%, compared to the third quarter of 2008.
Noninterest income net of securities transactions for the third quarter of
2009 was $48.6 million, a decrease of $1.0 million, or 2.06%, from the second
quarter of 2009 and an increase of $1.6 million, or 3.43%, from the third
quarter of 2008. The primary changes in these noninterest income categories
compared with the third quarter of 2008 were as follows: trust income was $5.1
million, a decrease of $0.5 million; ATM and other service fees was
$2.9 million, an increase of $0.2 million; investment services and insurance was
$2.5 million, a decrease of $0.4 million; and loan sales and servicing was
$3.9 million, an increase of $2.5 million. The increase in loan sales and
servicing is primarily attributed to increased mortgage origination and sales
volume.
Other income, net of securities gains, as a percentage of net revenue for the
third quarter of 2009 was 35.32% compared with 35.87% for second quarter of 2009
and 33.67% for the third quarter of 2008. Net revenue is defined as net interest
income, on a FTE basis, plus other income, less gains from securities sales.
Noninterest expense for the third quarter of 2009 was $84.2 million, a
decrease of $6.4 million, or 7.07%, from the second quarter of 2009 and an
increase of $3.6 million, or 4.41%, from the third quarter of 2008. Included in
the second quarter 2009 expenses was the FDIC Special Assessment pretax fee of
$5.1 million.
The efficiency ratio for the third quarter of 2009 was 61.05%, compared with
65.34% for the second quarter of 2009 and 57.64% for the third quarter of 2008.
Net charge-offs totaled $18.8 million, or 1.05% of average loans, in the
third quarter of 2009, compared with $21.6 million, or 1.19% of average loans,
in the second quarter 2009 and $11.8 million, or 0.64% of average loans, in the
third quarter of 2008.
Nonperforming assets totaled $88.9 million at September 30, 2009, an increase
of $15.5 million, or 21.17%, compared with June 30, 2009 and an increase of
$45.4 million, or 104.37%, compared with September 30, 2008. Nonperforming
assets at September 30, 2009 represented 1.26% of period-end loans plus other
real estate compared with 1.03% at June 30, 2009 and 0.59% at September 30,
2008.
The allowance for loan losses totaled $116.4 million at September 30, 2009,
an increase of $5.1 million from June 30, 2009. Given the current economic
environment, the Corporation has continued a strategy to increase reserve levels
and year-to-date has provided $12.6 million in excess of net charge-offs to the
allowance for loan losses. At September 30, 2009, the allowance for loan losses
was 1.66% of period-end loans compared with 1.56% at June 30, 2009 and 1.38%
at September 30, 2008. The allowance for credit losses is the sum of the
allowance for loan losses and the reserve for unfunded lending commitments. For
comparative purposes the allowance for credit losses was 1.72% at September 30,
2009, compared with 1.64% at June 30, 2009 and 1.47% at September 30, 2008. The
allowance for credit losses to nonperforming loans was 153.27% at September 30,
2009, compared with 184.71% at June 30, 2009 and 281.28% at September 30, 2008.
The Corporation's total assets at September 30, 2009 were $10.8 billion, an
increase of $64.4 million, or 0.60%, compared with June 30, 2009 and an increase
of $76.5 million, or 0.72%, compared with September 30, 2008. Growth in
investment securities of $300.8 million, or 12.28%, compared with September 30,
2008, provided the majority of the overall asset growth.
Total deposits were $7.3 billion at September 30, 2009, a decrease of
$179.9 million, or 2.41%, from June 30, 2009 and a decrease of $159.3 million,
or 2.14%, from September 30, 2008. The decrease as compared to both June 30,
2009 and September 30, 2008 was driven by a decrease in certificates and time
deposits of 18.12% and 40.40%, respectively, reflecting the Corporation's
success remixing the balance sheet and focusing on core deposit growth. Core
deposits totaled $5.6 billion at September 30, 2009, an increase of
$194.5 million, or 3.61%, from June 30, 2009 and an increase of $988.1 million,
or 21.52%, from September 30, 2008.
Shareholders' equity was $1,059.2 million at September 30, 2009, compared
with $1,022.6 million at June 30, 2009 and $926.1 million at September 30, 2008.
The Corporation increased its strong capital position as tangible common equity
to assets was 8.65% at September 30, 2009, compared with 8.36% at June 30, 2009
and, 7.45% at September 30, 2008. The common dividend per share paid in the
third quarter 2009 was $0.16 per share as well as a $0.13 per share dividend of
common stock.
RESULTS OF OPERATION
Net Interest Income
Net interest income, the Corporation's principal source of earnings, is the
difference between interest income generated by earning assets (primarily loans
and investment securities) and interest paid on interest-bearing funds (namely
customer deposits, securities sold under agreements to repurchase and wholesale
borrowings). Net interest income for the quarter ended September 30, 2009 was
$87.4 million compared to $91.1 million for the quarter ended September 30,
2008. For the purpose of this remaining discussion, net interest income is
presented on an FTE basis, to provide a comparison among all types of interest
earning assets. That is, interest on tax-free securities and tax-exempt loans
has been restated as if such interest were taxed at the statutory Federal income
tax rate of 35%, adjusted for the non-deductible portion of interest expense
incurred to acquire the tax-free assets. Net interest income presented on an FTE
basis is a non-GAAP financial measure widely used by financial services
organizations. The FTE adjustment was $1.7 million and $1.5 million for the
quarters ending September 30, 2009 and 2008, respectively. The FTE adjustment
was $5.1 million and $4.4 million for the nine months ending September 30, 2009
and 2008, respectively.
FTE net interest income for the quarter ended September 30, 2009 was
$89.1 million compared to $92.7 million for the three months ended September 30,
2008. FTE net interest income for the nine months ended September 30, 2009 was
$266.5 million compared to $267.3 million for six months ended September 30,
2008.
As illustrated in the following rate/volume analysis table, interest income
and interest expense both decreased due to the falling interest rate
environment. The Federal Reserve discount rate decreased 25 basis points in
April 2008, 100 basis points in October 2008, and 75 to 100 basis points again
in December 2008 and rates held flat for the first three quarters of 2009. The
section entitled "Financial Condition" contains more discussion about changes in
earning assets and funding sources.
Quarters ended September 30, 2009 and 2008 Nine months ended September 30, 2009 and 2008
RATE/VOLUME ANALYSIS Increases (Decreases) Increases (Decreases)
(Dollars in thousands) Volume Rate Total Volume Rate Total
INTEREST INCOME - FTE
Investment securities and
federal funds sold $ 3,147 $ (2,840 ) $ 307 $ 9,156 $ (5,331 ) $ 3,825
Loans held for sale 72 (20 ) 52 (647 ) (25 ) (672 )
Loans (3,245 ) (20,429 ) (23,674 ) 3,538 (75,233 ) (71,695 )
Total interest income - FTE $ (26 ) $ (23,289 ) $ (23,315 ) $ 12,047 $ (80,589 ) $ (68,542 )
INTEREST EXPENSE
Demand deposits-interest
bearing $ (26 ) $ (426 ) $ (452 ) $ (114 ) $ (1,579 ) $ (1,693 )
Savings and money market
accounts 1,373 (2,542 ) (1,169 ) 3,739 (10,222 ) (6,483 )
Certificates of deposits and
other time deposits (6,366 ) (4,813 ) (11,179 ) (14,270 ) (21,570 ) (35,840 )
Securities sold under
agreements to repurchase (1,815 ) (5,143 ) (6,958 ) (6,447 ) (18,162 ) (24,609 )
Wholesale borrowings 2,236 (2,213 ) 23 9,655 (8,724 ) 931
Total interest expense $ (4,598 ) $ (15,137 ) $ (19,735 ) $ (7,437 ) $ (60,257 ) $ (67,694 )
Net interest income - FTE $ 4,572 $ (8,152 ) $ (3,580 ) $ 19,484 $ (20,332 ) $ (848 )
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Net Interest Margin
The following table provides 2009 FTE net interest income and net interest
margin totals as well as 2008 comparative amounts:
Quarters ended Nine months
September 30, September 30,
(Dollars in thousands) 2009 2008 2009 2008
Net interest income $ 87,377 $ 91,121 $ 261,386 $ 262,951
Tax equivalent adjustment 1,702 1,538 5,076 4,359
Net interest income - FTE $ 89,079 $ 92,659 $ 266,462 $ 267,310
Average earning assets $ 9,802,810 $ 9,755,812 $ 9,996,354 $ 9,680,692
Net interest margin - FTE 3.61 % 3.78 % 3.56 % 3.69 %
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Average loans outstanding for the current year and prior year third quarters totaled $7.1 billion and $7.3 billion, respectively. Decreases in average loan balances from third quarter 2008 to the third quarter 2009 occurred in commercial, mortgage, and installment loans and leases while home equity and credit card loans increased. The overall decrease in average loan volume reflects the current economic cycle in which business owners and consumers are retrenching on their demand for leverage and borrowing. Business customers continue their
trend in inventory and receivable reduction and paying down existing debt to
strengthen their balance sheets. Consumer customers are taking a similar
approach with lower borrowing demand and increased usage of short-term savings
products.
Specific changes in average loans outstanding, compared to the third quarter
2008, were as follows: installment loans, both direct and indirect declined
$125.2 million or 7.74%; mortgage loans were down $77.2 million or 13.56%;
commercial loans were down $63.2 million or 1.52%; leases decreased
$10.2 million or 14.69%; home equity loans were up $49.0 million or 6.91%; and
credit card loans increased $1.5 million or 1.04%. The majority of fixed-rate
mortgage loan originations are sold to investors through the secondary mortgage
loan market. Average outstanding loans for the 2009 and 2008 third quarters
equaled 71.99% and 74.65% of average earning assets, respectively.
Average deposits were $7.4 billion during the 2009 third quarter, up
$58.1 million, or .79%, from the same period last year. For the quarter ended
September 30, 2009, average core deposits (which are defined as checking
accounts, savings accounts and money market savings products) increased
$913.8 million, or 19.87%, and represented 74.64% of total average deposits,
compared to 62.76% for the 2008 third quarter. Average certificates of deposit
("CDs") decreased $855.7 million, or 31.37%, compared to the prior year quarter.
These results reflect the Corporation's continued success in growing core
deposit relationships and deemphasizing a reliance on higher-cost certificate of
deposit accounts. The core deposit growth reflects the Corporation's success in
building a strong brand name in its core markets and capitalizing on market
disruption in northeast Ohio. Average wholesale borrowings increased
$249.2 million, and as a percentage of total interest-bearing funds equaled
. . .
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