FirstMerit Corp reported a lower-than-expected quarterly profit, weighed down by higher provisions for bad loans and charges, and said it was looking for Federal Deposit Insurance Corp (FDIC)-assisted deals for banks with assets of up to $5 billion.

Our increased capital levels provide us with additional support in this uncertain economy and position us to take advantage of growth opportunities in and around our core markets, Chief Executive Paul Greig said.

Fox-Pitt Cochran Caronia analyst Andrew Marquardt said, I think they will look for deals in the surrounding regions of Ohio like Pennsylvania that are relatively stable. They are not interested in going into Michigan.

For the second quarter, the Akron, Ohio-based bank-holding company earned $15.5 million, or 13 cents a share, compared with $29.2 million, or 36 cents a share, a year ago.

Analysts, on average, were expecting earnings of 20 cents a share, excluding items, according to Reuters Estimates.

Net interest income was nearly flat at $88.8 million.

The company recorded a charge of 4 cents a share on the FDIC special assessment and another charge of 6 cents related to the repayment of funds it received under the Troubled Asset Relief Program.

Provision for loan losses rose 82 percent to $26.5 million.

FirstMerit said provision for loan losses is expected to be between $21 million and $22 million per quarter for the remainder of the year.

They don't have a lot of exposure to key concern areas that have been and are plaguing the industry and they have done a good job in managing their credit book. I think they will be relatively better than peers, analyst Marquardt said.

Net interest margin was 3.56 percent for the second quarter, compared with 3.53 percent in the first quarter.

Commercial loan growth is expected to remain muted through the rest of the year, while expenses are estimated at about $83 million per quarter without further recognition of additional FDIC assessments, the company said.

Shares of the company closed at $18.35 Tuesday on Nasdaq. (Editing by Aradhana Aravindan, Vinu Pilakkott)

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