DBRS Comments on FirstMerit’s Acquisition of George Washington Savings Bank: Ratings Unaffected

DBRS has today commented that FirstMerit Corporation’s (FirstMerit or the Company) ratings, including its Issuer & Senior Debt rating of A (low) were unaffected by its acquisition of the banking operations of George Washington Savings Bank (George Washington) from the Federal Deposit Insurance Corporation (FDIC). The trend on all ratings is Stable.

The acquisition, which is immediately accretive to operating earnings, includes 4 branches, approximately $393 million in deposits and $330 million of loans. The transaction, in combination with the Company’s acquisition of 24 branches from FirstBank of Missouri (FirstBank), provides FirstMerit with a foothold in the higher growth, but highly competitive, Chicago-area market.

The purchase had a modest impact on the Company’s strong capital position (TCE ratio of 8.99% at December 31, 2009). Furthermore, FirstMerit’s relatively sound asset quality will be protected by a loss-share agreement with the FDIC. Specifically, the FDIC will assume 80% of losses related to the acquired portfolio, up to $172 million and 95% thereafter. Positively, FirstMerit is not acquiring the assets or liabilities of George Washington’s holding company.

Entering the Chicago-area market provides FirstMerit management the opportunity to lever their significant Chicago related experience. Nonetheless, DBRS views FirtMerit’s expansion outside of its core markets as a challenge, given the distance between Akron and Chicago, as well as the highly competitive landscape in Chicago.

FirstMerit’s ratings reflect its solid deposit franchise in northeastern Ohio, its diverse business model and relatively sound asset quality. DBRS expects the Company to continue generating operating results and maintaining credit fundamentals of banks in its rating range.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.