Moody's Continues Review of FirstMerit (FMER) for Downgrade; Outlook Remains Stable

Moody's Investors Service says that it is continuing to review for downgrade the ratings of FirstMerit Corporation (Nasdaq: FMER) and its lead bank subsidiary, FirstMerit Bank, N.A. (collectively, FirstMerit). The review continues pending the completion of the acquisition of FirstMerit by Huntington Bancshares Incorporated (Huntington, senior Baa1). The review was initiated on 26 January 2016 following the announcement that Huntington agreed to acquire FirstMerit in a stock and cash transaction expected to close in the third quarter of 2016. At that time, Moody's affirmed all the ratings of Huntington and its subsidiaries, including Huntington National Bank, with a stable outlook.

The ratings of FirstMerit Corporation under review include its A3 issuer and subordinated debt ratings and its Baa2(hyb) noncumulative preferred stock rating. The ratings of FirstMerit Bank under review include the A3 subordinated debt rating, as well as its standalone baseline credit assessment (BCA) of a2, adjusted BCA of a2, and long-term Counterparty Risk (CR) Assessment of A1(cr). The bank's long- and short-term bank deposit ratings of Aa3 and Prime-1, respectively, its A3 issuer rating, and its short-term CR Assessment of Prime-1(cr) are unaffected by the rating review.

RATINGS RATIONALE

Moody's said it expects to complete its review of FirstMerit's ratings once there is substantial certainty of the closing of the transaction including the receipt of all regulatory approvals.

The review for downgrade on FirstMerit's ratings was driven by the announcement that FirstMerit will be acquired by Huntington. Both Huntington and FirstMerit benefit from good asset quality and liquidity which will be enhanced by a strengthened deposit base. However, as FirstMerit's current creditworthiness is superior to Huntington's, resulting in a standalone BCA that is one notch above that of Huntington, Moody's expects to downgrade FirstMerit's ratings to match those of Huntington when the transaction closes.

Moody's said that FirstMerit's a2 standalone BCA is based on its strong direct banking presence in northeastern Ohio, which supports the sustainability of its revenues from commercial and consumer banking and underpins its strong core funding and liquidity. The BCA also reflects FirstMerit's consistent asset quality and profitability performance that derives from management's strong credit and cost discipline.

After the acquisition is completed, Moody's expects FirstMerit's holding company and bank to be merged into Huntington's holding company and bank, respectively. As such, Moody's expects to change FirstMerit's ratings to match those of Huntington at that time.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE

Moody's notes that in light of the pending merger with Huntington and given the current ratings review, there is no upward pressure on FirstMerit's ratings at this time. When the acquisition closes, Moody's expects to downgrade FirstMerit's BCA and long term debt ratings, and affirm the deposit and issuer ratings of the bank. If the acquisition does not close, there will likely be no action on FirstMerit's ratings and the outlook will return to stable, said Moody's.

The principal methodology used in this rating/analysis was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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