New York, April 15, 2013 -- Moody's Investors Service downgraded the ratings of FirstMerit Corporation
and its lead bank, FirstMerit Bank, N.A. (collectively
referred to hereafter as FirstMerit), following the company's
acquisition of Citizens Republic Bancorp, Inc. (Citizens
Republic) on April 12, 2013.
Moody's downgraded FirstMerit Bank's long-term deposit
rating to A2 from A1 and its standalone bank financial strength rating
(BFSR)/baseline credit assessment (BCA) to C+/a2 from B-/a1.
The bank's Prime-1 short-term deposit rating was confirmed.
The holding company's issuer rating was downgraded to A3 from A2.
FirstMerit's rating outlook is stable.
In a related action, Moody's raised Citizens Republic's ratings
to match those of FirstMerit. Citizens Republic's lead bank,
Citizens Bank, had its deposit ratings raised to A2/Prime-1
from Ba3/Not-Prime and its standalone BFSR/BCA raised to C+/a2
from D-/ba3. The holding company's issuer rating was raised
to A3/Prime-2 from B2/Not-Prime. Citizens Republic's
rating outlook is stable, which also matches FirstMerit's rating
outlook.
Today's actions conclude the rating reviews of FirstMerit and Citizens
Republic that began on September 13, 2012.
Immediately following the acquisition, the Citizens Bank charter
was merged into FirstMerit Bank, and no longer exists. As
a result, Moody's will withdraw Citizens Republic's ratings following
today's actions.
RATINGS RATIONALE
Moody's said the downgrade of FirstMerit's ratings was driven
by 1) the challenges associated with integrating a comparatively large
bank with a troubled history, and 2) FirstMerit's further
expansion into new markets. The Citizens Republic acquisition follows
FirstMerit's recent entry into the Chicago market. This geographic
expansion is a credit challenge, said Moody's.
Citizens Republic is FirstMerit's largest acquisition to date at
approximately $10 billion in assets or 65% of FirstMerit's
balance sheet, and it extends FirstMerit's franchise into
Michigan and Wisconsin: two new, albeit contiguous,
Midwest markets. At the same time, FirstMerit continues to
expand in the competitive Chicago market, which it also entered
via acquisition in 2010.
Moody's added that it expects the Citizens Republic acquisition
to weaken FirstMerit's capital ratios to some extent. Nonetheless,
the capital ratios will remain solid. Additionally, the risk
of further credit costs from the acquired loan portfolio is mitigated
by the combination of Citizens Republic's aggressive strategy to
reduce its problem assets in 2010-11 and FirstMerit's prudent
credit mark on the acquired loans. This will allow FirstMerit to
absorb credit costs in the combined portfolios even under a highly adverse
economic scenario and still maintain satisfactory capital ratios.
Downgrades:
..Issuer: FirstMerit Bank, N.A.
....Bank Financial Strength Rating,
Downgraded to C+ from B-
....Long-term Deposit Rating,
Downgraded to A2 from A1
....Issuer Rating, Downgraded to A2
from A1
....Long-term OSO Rating, Downgraded
to A2 from A1
..Issuer: FirstMerit Corporation
....Issuer Rating, Downgraded to A3
from A2
....Subordinate Rating, Downgraded to
Baa1 from A3
....Non-cumulative Preferred Stock
Rating, Downgraded to Baa3 (hyb) from Baa2 (hyb)
Confirmations:
..Issuer: FirstMerit Bank, N.A.
....Short-term Deposit Rating,
Confirmed at P-1
....Short-term OSO Rating, Confirmed
at P-1
Upgrades:
..Issuer: Citizens Bank, Michigan
....Bank Financial Strength Rating,
Upgraded to C+ from D-
....Deposit Rating, Upgraded to A2/P-1
from Ba3/NP
....Issuer Rating, Upgraded to A2 from
B1
....OSO Rating, Upgraded to A2/P-1
from B1/NP
..Issuer: Citizens Republic Bancorp, Inc.
....Issuer Rating, Upgraded to A3/P-2
from B2/NP
..Issuer: Citizens Funding Trust I
....Preferred Stock Rating, Upgraded
to Baa2 (hyb) from Caa2 (hyb)
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Methodology published in June 2012. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
FirstMerit Corporation is headquartered in Akron, Ohio and reported
assets of $14.9 billion at December 31, 2012.
Citizens Republic Bancorp, Inc. is headquartered in Flint,
Michigan and reported assets of $9.6 billion at December
31, 2012.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Joseph B Pucella
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades FirstMerit (issuer to A3) following the acquisition of Citizens Republic