FirstMerit Corp. reported a 10.4 percent increase Tuesday in its profit for the third quarter of 2012.
The Akron bank said its net income was $35 million, or 32 cents per share, for the third quarter. This compares to $31.7 million, or 29 cents per share, for the same period a year ago.
“Our strong results in the third quarter reflect our continued focus on banking fundamentals in the face of ongoing industry challenges including a low-interest environment and slow economic recovery,” said Paul G. Greig, chairman, president and chief executive officer of FirstMerit, in a news release.
The bank last month announced its intention to acquire Citizens Republic Bancorp of Michigan, with 291 offices in Michigan, Ohio and Wisconsin. The bank expects the transaction to close in the second quarter of 2013.
If the deal goes through, the bank would be the sixth largest in the Midwest, said Greig during a conference call with analysts.
Average loans for the bank for the quarter, not including what are called covered loans, increased $244.4 million, or 3.08 percent, compared with the second quarter of 2012 and increased $702.2 million, or 9.38 percent, compared with the third quarter a year ago, FirstMerit said.
Average commercial loans, excluding covered loans, increased $169.4 million, or 3.21 percent, compared to the prior quarter and $567.7 million, or 11.64 percent, compared with a year ago.
Average deposits were $11.6 billion during the third quarter of 2012, an increase of $36.6 million, or 0.32 percent, compared with the second quarter and an increase of $144.2 million, or 1.26 percent, compared with a year ago.
Analyst Andrew Marquardt with Evercore Partners said FirstMerit’s 32 cents per share was a penny better than its estimate of 31 cents and in line with consensus of 32 cents per share.
Marquardt called the report “overall, decent results.”
Greig discussed the Michigan economy during the conference call.
“It certainly feels that Michigan is well off the bottom and is improving significantly over the past decade where there has been a relative overall malaise,” Greig said. “It feels much better.”
Greig said FirstMerit, based on its success in entering the Chicago market in 2010 and expanding there, has a significant opportunity for penetration in Citizens’ markets. Greig said it was too early to discuss anything about branches in the Citizens’ network. “Keep in mind this company has an envious deposit franchise where 75 percent plus of deposits are core deposits,” Greig said, referring to deposits made in the home market. “That was very attractive to us and one of the reasons we found Citizens to be a viable acquisition candidate.”
However, the Citizens-FirstMerit merger has attracted some lawsuits. At least five have been filed in Michigan seeking class-action status on behalf of shareholders against the two banks, saying the proposed acquisition was the result of a flawed and unfair process and represents an inadequate and unfair price for Citizens shareholders. The deal is a stock transaction with a total value of about $912 million based on FirstMerit’s average 10-day closing price at the time of the announcement. The lawsuit says FirstMerit’s stock has fallen from above $17 before the announcement to around $14. One lawsuit said the banks did not negotiate for a “collar on the exchange rate to guard against downward fluctuation of FirstMerit’s stock price.”
Bert Ely, a banking consultant in Alexandria, Va., said there are class-action law firm specialists that believe, in some merger situations, “they may have a shot at either successfully bringing litigation or bringing a settlement of some kind.”
That doesn’t mean anything is wrong with the deal, Ely said.
However, Ely said looking at the decline in both banks’ prices since the deal, it’s possible the lawsuits will put “pressure on the FirstMerit board to renegotiate the deal.” The deal will be pending approvals from shareholders of both companies.
A second lawsuit against FirstMerit centers on interest charged to some commercial accounts from 1987 to 2008.
The lawsuit, which was originally filed in 2008 and dismissed, was reinstated by the 8th Appellate District Court in Cuyahoga County in 2010 and received class-action certification this summer. It alleges that loan documents during that period had a stated interest percentage. However, the bank’s practice of calculating the interest rate by a practice called the 365/360 method resulted in what plaintiff attorney Scott Gant says are tens of millions of dollars in overcharges borrowers, mostly small-business owners in Ohio.
On average, customers were charged an extra five or six days of interest, or 1.5 percent more, Gant said.
FirstMerit has since changed its practices. The lawsuit is now on hold while the bank is appealing the class-action certification.
Gant said the bank has been “unwilling to own up to the mistake and make whole the borrowers.”
FirstMerit spokesman Rob Townsend said the bank does not comment on pending litigation.