Magazine article American Banker

FirstMerit Corp.'s Credit Quality Said on the Mend

Magazine article American Banker

FirstMerit Corp.'s Credit Quality Said on the Mend

Article excerpt

FirstMerit Corp. is making some progress in dealing with its credit quality, analysts say.

On Thursday the Dominion Bond Rating Service initiated coverage of the $10.1 billion-asset Akron company's long-term and short-term debt and the outstanding debt of its FirstMerit Bank, which is also based in Akron.

The privately owned Toronto agency assigned an A (low) rating to FirstMerit's issuer and senior debt and gave the subsidiary's deposit and senior debt an A rating.

In a research note Thursday, Dominion said the ratings reflect its expectation for improvements in FirstMerit's loan growth, credit quality, and earnings in the short and medium term.

Also Thursday, J.J.B. Hilliard, W.L. Lyons Inc., a Louisville unit of PNC Financial Services Group Inc., upgraded FirstMerit to "buy," from "neutral."

Analysts say FirstMerit's recent credit-quality issues came from taking on too much risk in its commercial lending operations. The problems were exacerbated by slow economic growth in northeastern Ohio, where many of its branches are located, according to analysts.

Ross A. Demmerle, an analyst with Hilliard Lyons, wrote in a research note that FirstMerit's asset quality improved in the fourth quarter, because it had fewer nonperforming loans. He also wrote that "loan growth remains elusive" and may depend on Ohio's jump-starting its own economy.

However, despite the weak local economy, FirstMerit's market share "makes the franchise attractive to would-be buyers" and helps limit the stock's risk, he wrote.

FirstMerit said its nonperforming assets fell 4% from the third quarter and 44% from a year earlier, to $45.8 million. Net chargeoffs rose 20% from the third quarter but fell by more than half from a year earlier, to $12.5 million.

Full-year profits fell 11.5% from a year earlier, to $107 million. …

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