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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 0-10161
FIRSTMERIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
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(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
34-1339938
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(I.R.S. EMPLOYER IDENTIFICATION NO.)
III CASCADE PLAZA, 7TH FLOOR, AKRON,
OHIO 44308 (216) 384-8000
- -------------------------------------- ----------- -------------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) (TELEPHONE NUMBER)
OFFICES)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 1, 1995: $666,795,645.
Indicate the number of shares outstanding of registrant's common stock as
of February 1, 1995: 33,330,380 Shares of Common Stock, No Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement of FirstMerit Corporation, dated March
2, 1995, in Part III.
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PART I
ITEM 1. BUSINESS
Registrant, FirstMerit Corporation ("FirstMerit" or the "Corporation"), is
a multi-bank holding company organized in 1981 under the laws of the State of
Ohio and registered under the Bank Holding Company Act of 1956, as amended.
FirstMerit is also a savings and loan holding company registered under the Home
Owners' Loan Act of 1933, as amended. The executive offices of FirstMerit are
located in Akron, Ohio. FirstMerit was formerly known as First Bancorporation of
Ohio until December 19, 1994, when the corporate name was changed upon the
approval of the shareholders of FirstMerit. "FirstMerit" is a service mark
registered with the United States Patent and Trademark Office. FirstMerit is the
sole shareholder of each of the following entities: First National Bank of Ohio,
a national banking association, Akron, Ohio ("First National"), The Old Phoenix
National Bank of Medina, a national banking association, Medina, Ohio ("Old
Phoenix"), EST National Bank, a national banking association, Elyria, Ohio
("EST") (formerly known as Elyria Savings & Trust National Bank), Peoples
National Bank, a national banking association, Wooster, Ohio ("Peoples Bank"),
Citizens National Bank, a national banking association, Canton, Ohio
("Citizens"), Peoples Bank, N.A., Ashtabula, Ohio, a national banking
association, Ashtabula, Ohio ("Peoples N.A."), (collectively, the "Banks"),
Bancorp Trust Company, N.A., a national trust company, Naples, Florida ("Bancorp
Trust"), Life Savings Bank, FSB, a federal savings association, Clearwater,
Florida ("Life Savings"), FirstMerit Credit Life Insurance Company, an Arizona
corporation ("FirstMerit Insurance") and FirstMerit Community Development
Corporation ("FirstMerit CDC") (all, collectively, the "Subsidiaries").
Although principally a regional banking organization, FirstMerit through
the Subsidiaries provides a wide range of banking, fiduciary, financial and
investment services to corporate, institutional and individual customers
throughout northern Ohio, including Ashtabula, Cuyahoga, Erie, Geauga, Knox,
Lake, Lorain, Medina, Portage, Richland, Stark, Summit and Wayne Counties, and
southwestern Florida. FirstMerit directs the overall policies and financial
resources of the Subsidiaries, but the day-to-day affairs, including lending
practices, services, and interest rates, are managed by their own officers and
directors, some of whom are also officers and directors of FirstMerit. In
addition to the customary services of accepting funds for deposit and making
loans, the Banks provide a wide range of specialized services tailored to
specific markets, including personal and corporate trust services, personal
financial services, cash management services and international banking services.
FirstMerit's savings association subsidiary, Life Savings, provides demand,
savings and time deposit accounts, consumer and commercial loans, while
FirstMerit's non-banking direct and indirect subsidiaries provide insurance
sales services, reinsurance of credit life and accident and health insurance on
loans made by the Banks, securities brokerage services, equipment lease
financing, and other financial services. At February 1, 1995, FirstMerit's
Subsidiaries operated 161 full service banking offices, and had 149 automated
teller machines, located in 16 counties in the States of Ohio and Florida, and
employed approximately 3,359 full- and part-time employees.
<TABLE>
Presented in the following schedule is further specific information
concerning each of the financial institution Subsidiaries of FirstMerit as of
February 1, 1995:
<CAPTION>
NUMBER
SUBSIDIARY COUNTIES OF DATE OF DATE OF OF
INSTITUTION OPERATION* ORGANIZATION BUSINESS AFFILIATION TYPE OF CHARTER OFFICES
- ---------------- ---------------- ------------ ---------------- ----------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
First National Stark, Summit, 1947 Commercial bank 12/31/81 Federal 70
Bank of Ohio Cuyahoga and with trust
Portgage services
The Old Phoenix Medina and 1873 Commercial bank 12/31/81 Federal 16
National Bank Cuyahoga with trust
of Medina services
EST National Lorain, Cuyahoga 1901 Commercial bank 12/12/83 Federal 24
Bank and Erie with trust
services
Peoples National Knox, Medina 1892 Commercial bank 10/26/88 Federal 13
Bank Richland, Summit with trust
and Wayne services
</TABLE>
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<TABLE>
<CAPTION>
NUMBER
SUBSIDIARY COUNTIES OF DATE OF DATE OF OF
INSTITUTION OPERATION* ORGANIZATION BUSINESS AFFILIATION TYPE OF CHARTER OFFICES
- ---------------- ---------------- ------------ ---------------- ----------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
Citizens Stark 1933 Commercial bank 3/21/89 Federal 20
National Bank with trust
services
Bancorp Trust Collier and Lee, 1990 National Trust 2/17/90 Federal 2
Company, N.A. Florida Company
Peoples Bank, Ashtabula, 1890 Commercial bank 9/30/90 Federal 16
N.A. Geauga and Lake with trust
services
Life Savings Pinellas, 1994 Savings 3/11/94 Federal 5
Bank, FSB Florida association
<FN>
- ---------------
* Ohio unless otherwise noted.
</TABLE>
SUBSIDIARY OPERATIONS
Each Bank is engaged in commercial banking in its respective geographical
market. Commercial banking includes the acceptance of demand, savings and time
deposits and the granting of commercial and consumer loans for the financing of
both real and personal property. Other services include automated banking
programs, credit cards, the rental of safe deposit boxes, letters of credit,
leasing, discount brokerage and credit life insurance. The Banks also operate
trust departments which offer estate and trust services. Each Bank offers its
services primarily to consumers and small and medium size businesses in its
respective geographical market. None of the Banks are engaged in lending outside
the continental United States. None of the Banks are dependent upon any one
significant customer or a specific industry.
During 1994, FirstMerit completed the steps necessary to convert two of its
former savings association subsidiaries, Peoples Federal Savings Bank (Wooster,
Ohio) and Peoples Savings Bank (Ashtabula, Ohio), into national banks under the
respective charters and titles of Peoples National Bank and Peoples Bank, N.A.
Life Savings remains a federally-chartered savings association and operates
as such in its geographical market. As a savings association, its business
includes the acceptance of demand, savings and time deposit accounts and the
granting of consumer loans primarily secured by real property. Life Savings
offers its services principally to consumers and small businesses located in its
geographical market. It is not engaged in lending outside the continental United
States and is not dependent upon any one significant customer or a specific
industry.
Bancorp Trust is engaged in providing personal trust services in its
geographical markets. These services include acting as trustee in personal
trusts, custodial and investment agency services, guardianships and service as
personal representative in decedent estates.
FirstMerit Insurance was formed in 1985 to engage in underwriting of credit
life and credit accident and health insurance directly related to the extension
of credit by the Banks to their customers.
FirstMerit CDC was established in 1994 to further the efforts of
FirstMerit's Subsidiaries in meeting the credit needs of their lending
communities, and the requirements of the Community Reinvestment Act ("CRA").
Congress enacted CRA to assure that banks and savings associations meet the
deposit and credit needs of their communities. Through a community development
corporation, financial institutions can meet these needs by non-traditional
activities such as acquiring, rehabilitating, or investing in real estate in low
to moderate income neighborhoods, and promoting the development of small
business.
First National is the parent corporation of two wholly-owned Ohio
corporations organized in 1993 --FirstMerit Leasing Company ("FirstMerit
Leasing") and a registered broker/dealer subsidiary ("Investor Services").
FirstMerit Leasing primarily provides equipment lease financing and related
services, while Investor Services primarily provides discount brokerage services
to customers of First National and other Subsidiaries.
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ACQUISITIONS
FirstMerit engages on a regular basis in discussions concerning possible
acquisitions of other financial institutions. During 1994, FirstMerit acquired
control of both Life Savings, a federal savings association with its principal
offices located in Clearwater, Florida, and Great Northern Savings Co., an Ohio
savings association with its principal offices formerly located in Barberton,
Ohio. Life Savings was chartered by FirstMerit in 1994 to acquire the assets and
deposit liabilities of Life Federal Savings Bank, a federal savings association
under the conservatorship of the Resolution Trust Corporation, which was the
successor entity of Life Savings Bank, a failed Florida savings association.
Great Northern Savings Co. was acquired on April 22, 1994 through the merger of
its parent corporation, Great Northern Financial Corporation, an Ohio
corporation and savings and loan holding company, with and into FirstMerit in
exchange for approximately 1,882,440 shares of FirstMerit common stock.
FirstMerit then immediately effected a merger of Great Northern Savings Co. with
and into First National Bank of Ohio, a national bank subsidiary of FirstMerit.
On January 31, 1995, FirstMerit acquired control of Citizens Savings Bank
of Canton, an Ohio savings association with its principal offices in Canton,
Ohio ("Citizens Savings"). FirstMerit acquired Citizens Savings through the
merger of The CIVISTA Corporation, the sole shareholder of Citizens Savings
("CIVISTA"), with and into FirstMerit in exchange for approximately 6,513,119
shares of FirstMerit common stock. FirstMerit then immediately effected a merger
of Citizens Savings into The First National Bank in Massillon, a national bank
subsidiary of FirstMerit, to form a new national bank subsidiary called Citizens
National Bank, with its principal offices in Canton, Ohio.
When FirstMerit acquired control of Citizens Savings through the merger
with CIVISTA, it also acquired control of certain other wholly-owned
subsidiaries of CIVISTA, including Citizens Savings Corporation of Stark County
("CSC"), The CASNET Group, Inc. ("CASNET"), Citizens Investment Corporation
("CIC") and Crest Investments, Inc. ("Crest").
CSC owns and manages about 350 residential rental units in apartment and
duplex complexes which are primarily in the suburban Canton, Ohio area. CSC also
owns a large portion of an office condominium in Stark County, and engages in
property management for third parties. FirstMerit is in the process of selling
all assets, winding up the affairs, and formally dissolving CSC.
CIC owns and has participated in the development of residential real estate
in La Quinta, California. FirstMerit also is in the process of selling all
assets, winding up the affairs, and formally dissolving CIC.
CASNET had provided data processing services for Citizens Savings and six
other savings and loan associations in three states through a service center in
Canton, Ohio. CASNET also has developed and marketed computer software for
financial institutions, engaged in credit union on-line servicing, and provided
microfiche services, interactive voice response technology and personal computer
consulting. FirstMerit plans to either wind up the ongoing affairs of CASNET and
liquidate its assets or, if there is reasonable interest, sell CASNET and its
operations to a third party.
Crest owns Crest Insurance Agency, Inc., which sells securities and
tax-deferred annuities under an agreement with a registered broker/dealer.
FirstMerit is in the process of consolidating all of the activities of Crest
with those of Investor Services, FirstMerit's securities brokerage subsidiary,
and a third-party affiliate through which annuities will continue to be offered,
after which Crest will be formally dissolved.
COMPETITION
The financial services industry is highly competitive. FirstMerit and its
Subsidiaries compete with other local, regional and national providers of
financial services such as other bank holding companies, commercial banks,
savings associations, credit unions, consumer and commercial finance companies,
equipment leasing companies, brokerage institutions, money market funds and
insurance companies. The Subsidiaries' primary financial institution competitors
include Bank One, National City Bank, Society National Bank, Star Bank and The
Fifth Third Bank. Mergers between financial institutions within Ohio and in
neighboring states have added competitive pressure, which pressure may intensify
during 1995 as interstate banking becomes permissible under the Interstate
Banking and Branching Efficiency Act of 1994. FirstMerit competes in its markets
by offering quality and innovative services at competitive prices.
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REGULATION AND SUPERVISION
FirstMerit is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA"). Bank holding companies are subject to
regulation by the Federal Reserve. Under Federal Reserve policy, a bank holding
company is expected to act as a source of financial strength to each subsidiary
bank and to commit resources to support such subsidiary banks.
The BHCA requires the prior approval of the Federal Reserve in any case
where a bank holding company proposes to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank that is not already
majority-owned by it, or to merge or consolidate with any other bank holding
company. The BHCA prohibits the Federal Reserve from approving an application
from a bank holding company to acquire shares of a bank located outside the
state in which the operations of the holding company's banking subsidiaries are
principally conducted, unless such an acquisition is specifically authorized by
statute of the state in which the bank whose shares are to be acquired is
located. At present, many states, including Ohio, have adopted legislation
permitting such acquisitions by bank holding companies and such legislation is
pending in the legislatures of other states.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than five percent of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve is authorized to
approve the ownership of shares by a bank holding company in any company the
activities of which the Federal Reserve has determined to be so closely related
to banking or to managing or controlling banks as to be a proper incident
thereto. The Federal Reserve has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include: operating a savings association, mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing investment and financial advice; and acting as
an insurance agent for certain types of credit-related insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or any of its subsidiaries, on investments in the stock or
other securities of the bank holding company or its subsidiaries and on the
taking of such stock or securities as collateral for loans to any borrower.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of any services.
FirstMerit is also under the jurisdiction of the Securities and Exchange
Commission and certain state securities commissions for matters relating to the
offering and sale of its securities. FirstMerit is subject to the disclosure and
regulatory requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, as administered by the Commission.
FirstMerit also is a registered savings and loan holding company under the
Home Owners' Loan Act of 1933, as amended ("HOLA"), due to its control of Life
Savings. The primary federal regulator of savings and loan holding companies is
the Office of Thrift Supervision ("OTS").
With certain exceptions, a savings and loan holding company must obtain
prior written approval of OTS before acquiring control of an insured institution
or savings and loan holding company through the acquisition of stock or through
a merger or some other business combination. HOLA prohibits OTS from approving
an acquisition by a savings and loan holding company which would result in the
holding company controlling savings associations in more than one state, subject
to certain exceptions, including where the statutes of the state in which the
savings association to be acquired is located specifically permit a savings
association chartered by such state to be acquired by an out-of-state savings
association or savings and loan holding company. Ohio presently has legislation
permitting such an interstate acquisition by a savings and loan association or
savings and loan holding company. HOLA also prohibits savings and loan holding
companies and their subsidiaries which are not savings associations from
engaging in unrelated business activities other than those specifically exempted
by statute or regulation.
On September 29, 1994, President Clinton signed the Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Act"). The Interstate Act
generally permits nationwide interstate banking and branching
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commencing one year after enactment. After that time an "adequately capitalized"
and "well managed" bank holding company may acquire a bank in any state, subject
to certain concentration limitations. No banking organization may control more
than ten percent of deposits nationwide or more than 30.0% of deposits in any
one state. Individual states may waive the 30.0% limitation. Beginning June 1,
1997, interstate bank holding companies may consolidate banks they own in
multiple states into a single branch network, or acquire out-of-state banks as
branches. States may authorize interstate branching earlier than June 1, 1997,
or may opt out of the process altogether. De novo interstate branching is not
authorized by the Interstate Act, but states may specifically authorize it.
States may also limit the acquisition of newly-formed banks for a period of up
to five years to restrict effective de novo branching. The Interstate Act
requires CRA compliance by out-of-state branches and prohibits "deposit
production offices" to ensure that local savings are not diverted to other
states. Institutions must maintain a loan activity-to-deposit ratio within a
host state at least equal to one-half of the average percentage for all banks in
the host state, otherwise the institution's federal regulator may close the
out-of-state branch and restrict the institution from opening new branches in
that state. Certain state laws, such as those on intrastate branching, consumer
protection and fair lending, will still apply to out-of-state banks or branches.
The Interstate Act is expected to stimulate an already active merger environment
in the banking industry.
SUMMARY RESULTS OF OPERATIONS
As of December 31, 1994, FirstMerit's consolidated total assets were
$4,924,157,000. Consolidated total assets as of January 31, 1995, after taking
effect of the acquisition of CIVISTA, were $5,700,896,000. Earnings for
FirstMerit reached a record level in 1994 as $60,301,000 was reported for the
year ended December 31, 1994. The earnings reported reflect a $4,741,000
increase, or 8.5% over the prior year's earnings, which also were an all time
high. Earnings on a per share basis totaled $2.22, up from the $2.05 reported
for 1993, and total cash dividends paid to shareholders for the entire year was
$.98 per share, an increase of $.11 per share over the previously stated annual
payment of $.87.
During the third quarter of 1993, the Board of Directors elected to declare
a two-for-one stock split. All per share data is restated to reflect the stock
split.
Total interest income increased in 1994 by $11.6 million, or 3.7%, compared
to 1993, which had shown a decrease of 5.9% from 1992. Interest expense
increased by $6.1 million, or 5.5%, in 1994, resulting in a net interest income
improvement of $5.5 million or 2.7%. Non-interest income increased 4.4% to
$57,774,000 in 1994, although income from mortgage loan sales and servicing
decreased $2.9 million, largely as a result of higher market interest rates.
Shareholders' equity, which amounted to $431,538,000, increased by 3.44%
compared to one year ago. Over the years, additional measures of the capital
adequacy of a financial institution have been added, and include guidelines by
which regulatory agencies consider a banking institution to be well capitalized.
For an institution to be considered well capitalized, it must have a total
risk-based capital ratio of at least 10.0%, a Tier 1 capital ratio of at least
6.0%, a leverage ratio of at least 5%, and must not be subject to any order or
directive requiring the institution to improve its capital level. At December
31, 1994, FirstMerit had a risk-based capital ratio of 14.42%, a Tier 1 capital
ratio of 13.37%, a leverage ratio of 8.74%, and was not subject to any order or
directive requiring it to improve its capital level.
A favorable trend in the decline in charge-offs and non-performing assets
continued in 1994. Total charge-offs amounted to .13% of average outstanding
loans, down from the .18% reported in 1993 and the .53% reported for 1992. Also
reflecting a continuing trend was the reduction in non-performing assets from
1.51% of total loans at the end of 1992 to .83% for 1993 and .49% for 1994. Both
improvements can be attributed to the continued emphasis on professionalism in
the credit granting process and in the involvement with customers as their
financial circumstances change. The improvement in asset quality can also be
noted in the substantial reduction in the provision for loan losses which
declined to $4.5 million in 1994 from $7.2 million in 1993 and $17.7 million in
1992.
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ITEM 2. PROPERTIES
FIRSTMERIT CORPORATION
FirstMerit's executive offices and certain holding company operational
facilities, totalling 54,510 square feet, are leased from First National.
FirstMerit relocated its executive offices in 1994 to III Cascade, a seven-story
office building located in downtown Akron, Ohio. During 1993, a long-term
leasehold interest in III Cascade was acquired by an Ohio general partnership
(the "Partnership"), the general partners of which are FirstMerit and a Delaware
corporation subsidiary of Banc One Capital Corporation. FirstMerit does not
control the Partnership. The City of Akron is the lessor of the property. First
National has subleased all of the premises of III Cascade from the Partnership,
and FirstMerit subleases a portion of the premises from First National.
As a result of FirstMerit's merger with CIVISTA on January 31, 1995,
FirstMerit became the owner of two Canton, Ohio residential apartment complexes
formerly owned by CIVISTA: Woodlawn Village and London Square. Woodlawn Village
and London Square have 198 and 224 apartment and townhouse units, respectively.
Both properties are subject to long-term mortgage loans with approximately
$7,537,276 million in aggregate remaining principal. FirstMerit intends to sell
the complexes during 1995.
The facilities owned or leased by FirstMerit and its Subsidiaries are
considered by management to be adequate, and neither the location nor unexpired
term of any lease is considered material to the business of FirstMerit.
FIRST NATIONAL BANK OF OHIO
The principal executive offices of First National are located in its
28-story main office building located at 106 South Main Street, Akron, Ohio,
which is owned by First National. First National is the principal tenant of the
building occupying approximately one-half of a total of 215,000 square feet of
the building, with the remaining portion leased to tenants unrelated to First
National. The properties occupied by 35 of First National's other branches are
owned by First National, while the properties occupied by its remaining 32
branches are leased with various expiration dates. First National also leases
property in which the operations of two additional offices, a loan production
office and a branch trust office, are located. There is no mortgage debt owing
on any of the above property owned by First National. First National also owns
automated teller machines, on-line teller terminals and other computers and
related equipment for use in its business.
First National in 1994 relocated its Installment Loan, Mortgage Loan,
Credit Recovery and Credit Departments to renovated offices covering 30,600
square feet in III Cascade. First National also has begun major renovations to
its main office building. First National plans to renovate all space which it
occupies in the building, as well as all public areas.
First National also owns 19.5 acres near downtown Akron, on which is
located FirstMerit's Operations Center. The Operations Center is occupied and
operated by FirstMerit Services Division, an operating division of FirstMerit.
The Operations Center primarily provides computer and communications
technology-based services to FirstMerit and the Subsidiaries, and also markets
its services to non-affiliated institutions. There is no mortgage debt owing on
the Operations Center property. In connection with its Operations Center, the
Services Division has a disaster recovery center at a remote site on leased
property.
The Trust Department of First National relocated in 1993 from the main
office building of First National to Main Place, a four-story office building
located in downtown Akron. The Trust Department occupies 16,650 square feet of
leased space in Main Place.
THE OLD PHOENIX NATIONAL BANK OF MEDINA
The principal executive offices of Old Phoenix are located in its main
office building at 39 Public Square, Medina, Ohio. The building which houses its
executive offices is leased by Old Phoenix. The properties occupied by four of
Old Phoenix's branches are owned by Old Phoenix, while the properties occupied
by its remaining 11 branches are the subject of various lease obligations having
various expiration dates. These facilities are leased from IRT Properties, a
publicly-held real estate investment trust. Old Phoenix also owns
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automated teller machines, on-line teller terminals and other related equipment.
The computer operations of Old Phoenix are provided through FirstMerit.
EST NATIONAL BANK
The principal executive offices of EST are located in its main office
building at 105 Court Street, Elyria, Ohio, which is owned by EST. EST occupies
approximately one-half of the total available space in the building. EST owns
the land and buildings occupied by 18 of its banking offices. The remaining five
banking offices are the subject of lease obligations with various lessors and
varying lease terms and expiration dates. EST also has automated teller machines
and on-line teller terminals. The computer operations of EST are provided
through FirstMerit.
PEOPLES NATIONAL BANK
The principal executive offices of Peoples Bank are located in its main
office building at 121 North Market Street, Wooster, Ohio, which is owned by
Peoples Bank. The properties occupied by seven of Peoples Bank branches are
owned by Peoples Bank, while the properties occupied by its remaining five
branches are leased at various expiration dates. No mortgage debt exists on the
above property owned by Peoples Bank. Peoples Bank also has automated teller
machines and on-line terminals. The computer operations of Peoples Bank are
provided through FirstMerit.
CITIZENS NATIONAL BANK
The principal executive offices of Citizens are located in its main office
building at 100 Central Plaza South, Canton, Ohio. FirstMerit is in the process
of consolidating with these offices, which formerly were the principal executive
offices of Citizens Savings Bank of Canton, the principal executive offices of
The First National Bank in Massillon, the national bank subsidiary of FirstMerit
into which Citizens Savings merged. The executive offices of The First National
Bank in Massillon formerly were located at One First National Plaza, Massillon,
Ohio, in the center of downtown Massillon. That building is now owned by
Citizens, remains a principal branch of Citizens, and is not subject to any
mortgage debt. Citizens owns the properties occupied by nine of its other
banking offices, while the properties occupied by the remaining nine are leased
under different leases with various expiration dates.
PEOPLES BANK, N.A.
The principal executive offices of Peoples N.A. are located in its main
office at 4200 Park Avenue, Ashtabula, Ohio, which is owned by Peoples N.A.
Peoples N.A. owns the properties occupied by five of its branches, while the
properties occupied by its remaining nine branches are leased at various
expiration dates. Peoples N.A. also leases the property occupied by a loan
production office. No mortgage debt exists on the above property owned by
Peoples N.A. Peoples N.A. also has automated teller machines and on-line
terminals. The computer operations of Peoples N.A. are provided through
FirstMerit.
BANCORP TRUST COMPANY, N.A.
Bancorp Trust has its principal executive offices at 5133 Costello Drive,
Suite One, Naples, Florida under a short-term lease with a renewal option at the
election of Bancorp Trust. Bancorp Trust leases one additional office in Ft.
Myers, Florida.
LIFE SAVINGS BANK, FSB
The principal executive offices of Life Savings are located in its main
office at 26149 U.S. Route 19 North, Clearwater, Florida, under a short-term
lease. The properties occupied by Life Savings remaining four branches are
leased at various expiration dates. No mortgage debt exists on the above
property owned by Life Savings. Life Savings also has on-line terminals.
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CITIZENS SAVINGS CORPORATION OF STARK COUNTY
CSC, a former subsidiary of The CIVISTA Corporation owns and manages about
350 residential rental units in apartment and duplex complexes which are
primarily in the suburban Canton, Ohio area. The principal residential complex
is Perry Hills Colony, which has 140 apartment and townhouse units and is
subject to a long-term mortgage loan with approximately $1,452,543 million in
remaining principal. CSC also owns a large portion of an office condominium in
Stark County. FirstMerit intends during 1995 to sell all assets, wind up the
affairs, and formally dissolve CSC.
ITEM 3. LEGAL PROCEEDINGS
The nature of FirstMerit's business results in a certain amount of
litigation. Accordingly, FirstMerit and its subsidiaries are subject to various
pending and threatened lawsuits in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, is of the opinion
that the ultimate liability of such pending matters would not have a material
effect on FirstMerit's financial condition.
During 1991, a suit was filed in federal court against First National
alleging conversion and negligence in the deposit of funds. The suit sought
actual damages against First National plus punitive damages, interest, costs,
attorneys fees and other relief. Suits brought in state court by other claimants
based on the same deposits have been stayed. During 1993, the federal court
granted First National's motion for summary judgment. As a result, that suit was
dismissed. The plaintiff in that suit subsequently filed a notice of appeal.
First National is vigorously seeking to have the favorable federal judgment
affirmed on appeal, and FirstMerit continues to believe First National has
meritorious defenses to all claims. After consultation with legal counsel,
Management believes that the possibility of a multiple recovery by both the
federal court and state court plaintiffs is unlikely and that the maximum
exposure for damages approximates $7,300,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of FirstMerit was held during the fourth
quarter of 1994. The meeting was held on December 15, 1994, for the following
purposes:
1. To adopt the Agreement of Affiliation and Plan of Merger dated August
10, 1994 by and between FirstMerit and The CIVISTA Corporation;
2. To change the name of the registrant from First Bancorporation of Ohio
to FirstMerit Corporation;
3. To amend FirstMerit's Amended and Restated Articles of Incorporation to
increase the authorized Common Stock from 40,000,000 to 80,000,000; and
4. To amend FirstMerit's Amended and Restated Articles of Incorporation to
increase the authorized Preferred Stock from 3,500,000 to 7,000,000
shares.
<TABLE>
The stockholders approved each of the above matters, and the number and manner
of votes on each matter was as follows:
<CAPTION>
VOTES CAST BROKER
MATTER FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
------ ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1. 20,772,845 436,672 0 263,220 1,179,342
2. 20,846,556 1,471,823 0 333,701 0
3. 21,209,507 1,165,537 0 277,035 0
4. 18,711,017 2,409,132 0 432,588 1,099,342
</TABLE>
8
<PAGE> 10
EXECUTIVE OFFICERS OF REGISTRANT
<TABLE>
The following persons are the executive officers of FirstMerit as of
February 28, 1995. Unless otherwise designated, they are officers of FirstMerit,
and unless otherwise stated, they have held their indicated positions for the
past five years.
<CAPTION>
DATE
APPOINTED TO
NAME AGE FIRSTMERIT POSITION AND BUSINESS EXPERIENCE
- --------------------- ------ ------------- -----------------------------------------------
<S> <C> <C> <C>
Howard L. Flood 60 12-31-81 President and Chief Executive Officer
Richard L. Hardgrove 56 04-12-89 Senior Executive Vice President and Chief
Operating Officer since January 1, 1993;
previously Executive Vice President; President
and Chief Executive Officer of First National
since January 1, 1992; previously President and
Chief Executive Officer of The First National
Bank in Massillon
Phillip E. Becker 50 02-13-92 Executive Vice President; President and Chief
Executive Officer of Peoples Bank since April
16, 1994; previously President and Chief
Executive Officer of The First National Bank in
Massillon since January 1, 1992; previously
Executive Vice President of The First National
Bank in Massillon
Robert P. Brecht 45 08-09-91 Executive Vice President; President and Chief
Executive Officer of Peoples N.A. since August
1, 1991; previously Executive Vice President
and Senior Vice President of Peoples N.A.
Jack R. Gravo 48 02-16-95 Executive Vice President; President and Chief
Executive Officer of Citizens since February 1,
1995; previously President of The CIVISTA
Corporation
John R. Macso 48 11-08-90 Executive Vice President; Executive Vice
President of First National since August 18,
1994; previously Senior Loan/Credit Officer
First National since August 1, 1991; previously
President and Chief Executive Officer of
Peoples N.A.
Bill F. Nash 64 05-12-83 Executive Vice President; Senior Executive Vice
President of First National until January 1,
1993
George P. Paidas 48 04-13-94 Executive Vice President; President and Chief
Executive Officer of Old Phoenix since March 9,
1994; previously Executive Vice President of
Old Phoenix
W. Daniel Waldron 54 04-11-84 Executive Vice President; President and Chief
Executive Officer of EST since April 16, 1994;
previously President and Chief Executive
Officer of Peoples Bank
Thomas C. Williams 46 08-18-94 Executive Vice President; President and Chief
Executive Officer of Life Savings since March
11, 1994; previously Senior Vice President of
First National
Gregory R. Bean 44 04-10-91 Senior Vice President; Senior Vice President
and Senior Trust Officer of First National;
Executive Vice President and Chief Operating
Officer of Bancorp Trust
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
DATE
APPOINTED TO
NAME AGE FIRSTMERIT POSITION AND BUSINESS EXPERIENCE
- --------------------- ------ ------------- -----------------------------------------------
<S> <C> <C> <C>
Gary J. Elek 43 02-11-88 Senior Vice President and Treasurer; Senior
Vice President and Controller of First National
until January 1, 1992
Scott A. Lyons, Jr. 49 05-28-91 Senior Vice President; Executive Vice President
of First National since May 28, 1991;
previously partner with KPMG Peat Marwick
Terry E. Patton 46 04-10-85 Senior Vice President, Counsel and Secretary;
Senior Vice President, Counsel and Secretary of
First National
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The outstanding shares of FirstMerit Common Stock are quoted on the NASDAQ
National Market System. The following table contains bid and cash dividend
information for FirstMerit Common Stock for the two most recent fiscal years:
<TABLE>
STOCK PERFORMANCE AND DIVIDENDS
<CAPTION>
PER SHARE
BIDS -------------------------
QUARTER ------------------------- DIVIDEND BOOK
ENDING HIGH LOW RATE VALUE*
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
3-31-93 25.13 23.25 0.2150 14.51
6-30-93 24.25 20.75 0.2150 14.84
9-30-93 29.00 22.25 0.2350 15.17
12-31-93 30.75 25.25 0.2350 15.38
- ----------------------------------------------------------------------
3-31-94 26.00 22.50 0.2350 15.53
6-30-94 26.00 22.50 0.2500 15.77
9-30-94 27.75 23.75 0.2500 15.93
12-31-94 27.50 21.75 0.2500 15.89
- ----------------------------------------------------------------------
<FN>
- ---------------
Number of shareholders at Dec. 31, 1994 - 6,828
*Based upon number of shares outstanding at the end of each quarter.
</TABLE>
This table sets forth the high and low closing bid quotations, dividend
rates and book values per share for the calendar periods indicated. All previous
statistics are adjusted to reflect the two-for-one stock split of August 30,
1993. These quotations, furnished by the National Quotations Bureau
Incorporated, represent prices between dealers, do not include retail markup,
markdowns, or commissions, and may not represent actual transactions.
On February 1, 1995 there were approximately 7,322 shareholders of record
of FirstMerit Common Stock.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
SELECTED FINANCIAL DATA
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Results of Operations
Interest income............. $ 316,809 304,589 323,597 347,388 357,802 351,679
Conversion to fully-tax
equivalent............... 4,590 5,245 5,642 6,940 9,067 10,187
---------- --------- --------- --------- --------- ---------
Interest income*............ 321,399 309,834 329,239 354,328 366,869 361,866
Interest expense............ 115,877 109,787 134,111 186,246 208,644 205,954
---------- --------- --------- --------- --------- ---------
Net interest income*........ 205,522 200,047 195,128 168,082 158,225 155,912
Provision for possible loan
losses................... 4,461 7,239 17,657 11,827 11,979 8,892
Other income................ 56,876 55,320 51,951 45,696 38,912 37,859
Other expense............... 166,986 160,767 146,790 136,130 126,746 132,058
---------- --------- --------- --------- --------- ---------
Income before federal income
taxes*................... 90,951 87,361 82,632 65,821 58,412 52,821
Federal income taxes........ 26,060 26,556 23,717 16,755 12,329 13,635
Fully-tax equivalent
adjustment............... 4,590 5,245 5,642 6,940 9,067 10,187
---------- --------- --------- --------- --------- ---------
Federal income taxes*....... 30,650 31,801 29,359 23,695 21,396 23,822
---------- --------- --------- --------- --------- ---------
Net income.................. $ 60,301 55,560 53,273 42,126 37,016 28,999
========== ========= ========= ========= ========= =========
Per share:
Net income............... $ 2.22 2.05 1.97 1.56 1.37 1.07
Cash dividends........... 0.98 0.87 0.79 0.77 0.71 0.66
Dividend payout ratio....... 43.93% 42.27% 40.26% 49.31% 51.59% 61.81%
---------- --------- --------- --------- --------- ---------
Average Ratios
Return on total assets...... 1.32% 1.28% 1.28% 1.04% 0.94% 0.76%
Return on shareholders'
equity................... 14.09% 13.79% 14.49% 12.38% 11.53% 9.28%
Shareholders' equity to
total assets............. 9.34% 9.28% 8.85% 8.41% 8.16% 8.15%
---------- --------- --------- --------- --------- ---------
Balance Sheet Data
Total assets (at December
31)...................... $4,924,157 4,380,283 4,303,587 4,116,540 4,054,137 3,934,814
Daily averages:
Total assets............. $4,581,127 4,343,205 4,152,131 4,043,246 3,935,955 3,837,234
Earning assets........... 4,238,733 3,968,334 3,814,714 3,712,362 3,600,807 3,495,006
Deposits and other
funds.................. 4,116,836 3,898,096 3,736,949 3,655,910 3,566,706 3,478,424
Shareholders' equity..... 427,824 402,853 367,638 340,183 321,117 312,655
<FN>
- ---------------
*Fully-tax equivalent basis
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following commentary presents Management's discussion and analysis of
the Corporation's financial condition and results of operations. The review
highlights the principal factors affecting earnings and the significant changes
in balance sheet items for years 1994, 1993 and 1992. Financial information for
prior years is presented when appropriate. The objective of this financial
review is to enhance the reader's understanding of the accompanying tables and
charts, the consolidated financial statements, notes to the financial statements
and financial statistics appearing elsewhere in this report. Where applicable,
this discussion also reflects Management's insights of known events and trends
that have or may reasonably be expected to have a material effect on the
Corporation's operations and financial condition.
11
<PAGE> 13
All financial data have been restated to give effect to acquisitions
accounted for on a pooling of interest basis and stock splits in previous
periods. The results of other bank and branch acquisitions, accounted for as
purchases, have been included effective with the respective dates of
acquisition.
EARNINGS SUMMARY
FirstMerit Corporation's net income for 1994 totaled $60.3 million. This
represents an 8.5% increase over 1993 and a record high for the Corporation. Net
income was favorably affected by improved asset quality and increased
non-interest income. Net income for 1994 of $60.3 million compares to $55.6
million in 1993 and $53.3 million in 1992.
The return on average assets for the Corporation equaled 1.32% in 1994
compared to 1.28% in 1993 and 1992. The Corporation's return on average equity,
which is largely affected by its strong capital base, equaled 14.09% in 1994
compared to 13.79% and 14.49% in 1993 and 1992, respectively.
On April 22, 1994 the Corporation completed the acquisition of Great
Northern Financial Corporation for approximately 1,882,440 shares of the
Corporation's common stock. The transaction was accounted for as a pooling of
interests and the following financial information in this report has been
restated to reflect the acquisition.
On August 19, 1993 the Corporation's Board of Directors declared a 2-for-1
split of the Corporation's common stock, to shareholders of record as of August
30, 1993. The per share data is restated to reflect the stock split.
Net income on a per share basis totaled $2.22 compared to $2.05 in 1993 and
$1.97 in 1992. The following table summarizes the changes in earnings per share
for 1994 and 1993.
<TABLE>
<CAPTION>
1994/ 1993/
(DOLLARS) 1993 1992
- --------------------------------------------- -------- --------
<S> <C> <C>
CHANGES IN EARNINGS PER SHARE
Net income for 1993 and 1992,
respectively............................ $ 2.05 $ 1.97
Increases (decreases) attributable to:
Net interest income -- taxable
equivalent............................ .20 .18
Provision for possible loan losses...... .10 .38
Trust services.......................... .13 .03
Service charges on deposit accounts..... (.04) .02
Credit card fees........................ .01 .02
Securities gains, net................... (.01) (.05)
Other income............................ (.04) .10
Salaries and employee benefits.......... (.17) (.33)
Net occupancy expense................... (.04) (.03)
Equipment expense....................... .03 (.02)
Other expenses.......................... (.04) (.13)
Federal income taxes -- taxable
equivalent............................ .04 (.09)
-------- --------
Net change in net income................ .17 .08
-------- --------
Net income.............................. $ 2.22 2.05
======== ========
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between interest and loan fee income on
earning assets and the interest paid on deposits and borrowed funds, is the
principal source of earnings for the Corporation. Throughout this discussion net
interest income is presented on a fully taxable equivalent (FTE) basis which
restates interest on tax-exempt securities and loans as if such interest was
subject to federal income tax at the statutory rate.
Net interest income is affected by market interest rates on both earning
assets and interest bearing liabilities, the level of earning assets being
funded by interest bearing liabilities, non-interest bearing liabilities
12
<PAGE> 14
and equity, and the growth in earning assets. The following table shows the
allocation to assets, the source of funding and their respective interest
spreads.
<TABLE>
<CAPTION>
1994
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest bearing liabilities..................... $3,450,367 4.22% 145,745
Non-interest bearing liabilities and equity...... 788,366 7.58%* 59,777
---------- --------
$4,238,733 205,522
========== ========
</TABLE>
<TABLE>
<CAPTION>
1993
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
<S> <C> <C> <C>
Interest bearing liabilities..................... $3,255,266 4.44% 144,373
Non-interest bearing liabilities and equity...... 713,068 7.81%* 55,674
---------- --------
$3,968,334 200,047
========== ========
</TABLE>
<TABLE>
<CAPTION>
1992
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
<S> <C> <C> <C>
Interest bearing liabilities..................... $3,198,227 4.44% 141,920
Non-interest bearing liabilities and equity...... 616,487 8.63%* 53,208
---------- --------
$3,814,714 195,128
========== ========
<FN>
- ---------------
*Yield on earning assets
</TABLE>
Net interest income increased $5.5 million or 2.7% in 1994 compared to 1993
totaling $205.5 million. The increase resulted from an increase in average
earning assets as the lower market interest rates in the first half of 1994 as
well as the prior two years reduced both the yield on earning assets and the
interest spread. The yield on earning assets is down 23 basis points from 1993
at 7.58% and 105 basis points from 1992. Likewise the interest spread is down 22
basis points from both 1993 and 1992 largely due to lower yield on earning
assets.
Earning assets funded by non-interest bearing liabilities increased from
18.0% in 1993 and 16.2% in 1992 to 18.6% in 1994. The cost of interest bearing
liabilities and equity was 3.36% in 1994 compared to 3.37% and 4.19% in 1993 and
1992, respectively.
While the cost of funds decreased in 1994, higher interest rates in the
second half of 1994 resulted in a higher funding cost while the yield on earning
assets increased at a slower rate. As a result, the difference between funding
cost and yield has decreased and has adversely affected net interest income.
This trend is expected to continue at least through the first half of 1995,
thereby continuing to negatively impact net interest income in 1995.
13
<PAGE> 15
The table below provides an analysis of the effect of changes in interest
rates and volumes on net interest income in 1994 and 1993.
<TABLE>
CHANGES IN NET INTEREST DIFFERENTIAL --
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 AND 1993 1993 AND 1992
-------------------------- ---------------------------
INCREASE (DECREASE) IN INCREASE (DECREASE) IN
INTEREST INCOME/EXPENSE INTEREST INCOME/EXPENSE
-------------------------- ---------------------------
YIELD/ YIELD/
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment securities:
Taxable.............................. $3,739 (4,180) (441) 3,881 (11,519) (7,638)
Tax-exempt........................... 353 (1,036) (683) (11) (632) (643)
Loans.................................. 20,461 (6,876) 13,585 9,010 (19,431) (10,421)
Federal funds sold..................... (1,748) 852 (896) (289) (414) (703)
------- ------- ------ ------- ------- -------
Total interest income.................. 22,805 (11,240) 11,565 12,591 (31,996) (19,405)
------- ------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing.............. 428 (557) (129) 161 (1,651) (1,490)
Savings.............................. 665 (3,599) (2,934) 4,670 (6,894) (2,224)
Certificates and other time
deposits.......................... (930) 324 (606) (5,153) (14,935) (20,088)
Federal funds purchased, securities
sold under agreements to repurchase
and other borrowings................. 7,936 1,823 9,759 150 (672) (522)
------- ------- ------ ------- ------- -------
Total interest expense................. 8,099 (2,009) 6,090 (172) (24,152) (24,324)
------- ------- ------ ------- ------- -------
Net interest income.................... $14,706 (9,231) 5,475 12,763 (7,844) 4,919
======= ======= ====== ======= ======= =======
<FN>
- ---------------
Note: The rate volume variance has been allocated entirely to volume.
</TABLE>
Total interest income increased by $11.6 million in 1994 or 3.7% compared
to 1993, which decreased 5.9% compared to 1992. The 1994 increase resulted from
a strong loan demand during the second half of the year as the local economy
continued to show strength. Increases in loans accounted for $20.5 million of
the $22.8 million increase in interest income due to increases in volume.
Increases in interest income due to volume were offset by an $11.2 million
decrease due to lower yields/rates. Income from investment securities decreased
$5.2 million due to lower interest rates while loan income was off $6.9 million.
In total, interest on loans increased $13.6 million while investments including
federal funds sold decreased by $2.0 million.
In 1993 lower interest rates offset increases in interest income as
decreases due to yields/rates totaled $32.0 million compared to an increase due
to volume of $12.6 million for a net decrease of $19.4 million.
Interest expense increased by $6.1 million or 5.5% in 1994 compared to 1993
largely affected by increases in short term borrowings. Much of the funding of
the loan volume increase noted above came from short term borrowing as deposit
growth remained relatively flat. Increases in interest expense due to volume
totaled $8.1 million of which $7.9 million was in short term borrowings while
interest expense on deposits increased $.2 million from increased volume.
While interest expense showed a decrease due to yields/rates most of the
decrease was a result of lower costs of core deposits over the entire year
totaling $3.8 million. The decrease in the cost of core deposits was offset by
the increasing cost of short term borrowings which increased $1.8 million as
much of the increase in borrowings occurred in the second half of 1994 in a
rising interest rate environment.
14
<PAGE> 16
In 1993 interest expense was mainly affected by lower market interest rates
as $24.2 million of the decrease in interest expense was due to lower
yields/rates.
The net interest margin is calculated by dividing net interest income FTE
by average earning assets. As with net interest income, the net interest margin
is affected by the level and mix of earning assets, the proportion of earning
assets funded by non-interest bearing liabilities and the interest rate spread.
In addition, the net interest margin is impacted by changes in federal
income tax rates and regulations as they affect the tax equivalent adjustment.
The net interest margin was 4.85% in 1994 compared to 5.04% in 1993 and
5.12% in 1992. As interest rates continued their decline during the first half
of 1994, the yield on earning assets ended the year at 7.58% down from 7.81% in
1993. The cost of funding the earning assets during 1994 fell 4 basis points to
2.73% compared to 2.77% in 1993 and 3.51% in 1992.
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income............................ $ 200,932 194,802 189,486
Tax equivalent adjustment...................... 4,590 5,245 5,642
---------- --------- ---------
Net interest income -- FTE..................... $ 205,522 200,047 195,128
========== ========= =========
Average earning assets......................... $4,238,733 3,968,334 3,814,714
========== ========= =========
Net interest margin............................ 4.85% 5.04% 5.12%
========== ========= =========
</TABLE>
The mix of earning assets was affected by a strong economy during 1994 as
average loans outstanding increased 9.6% compared to one year ago. Average loans
equalled 67.1% of average earning assets compared to 65.4% and 65.3% in 1993 and
1992, respectively.
The amount of average earning assets funded by non-interest bearing
liabilities and equity totaled 18.6% in 1994 compared to 18.0% in 1993 and 16.2%
in 1992.
NON-INTEREST INCOME
<TABLE>
Non-interest income totaled $56.9 million in 1994, an increase of 2.8%
compared to 1993. This follows a 6.5% increase for 1993 compared to 1992.
<CAPTION>
1994 1993 1992
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Trust fees............................................. $13,423 9,907 9,103
Service charges on deposits............................ 19,674 20,687 20,089
Credit card fees....................................... 8,226 7,987 7,317
Service fees -- other.................................. 5,111 4,372 4,296
Mortgage sale and servicing............................ 1,779 4,680 3,821
Securities gains, net.................................. (76) 29 1,368
Other income........................................... 8,739 7,658 5,957
------- ------ ------
$56,876 55,320 51,951
======= ====== ======
</TABLE>
A $3.5 million increase in trust fees helped offset a $2.9 million decrease
in income from mortgage loan sales and servicing. While the decrease in mortgage
fees was largely impacted by higher market interest rates, the increase in trust
income was largely due to nonrecurring fees collected in 1994 amounting to
approximately $2.5 million.
The decrease in mortgage fees resulting from higher market interest rates
is expected to continue in 1995.
15
<PAGE> 17
Service charges on deposits were down 4.9% compared to 1993 and accounted
for 34.1% of non-interest income compared to 37.4% and 38.7% in 1993 and 1992,
respectively. Credit card fees increased 3.0% compared to 1993 and accounted for
14.5% of non-interest income. Other income increased $1.0 million compared to
one year ago, and accounted for 15.4% of non-interest income compared to 13.8%
and 11.5% in 1993 and 1992, respectively.
Continued increases in market interest rates had a significant impact on
mortgage lending activities throughout 1994. Mortgage sales and loan servicing
fees decreased from $4.7 million in 1993 to $1.8 million in 1994, a decrease of
62.0%. The Corporation's practice is to sell all fixed rate thirty year
residential mortgage loans originated while retaining the servicing for these
loans.
Non-interest income covered 34.1% of non-interest expense in 1994, compared
to 34.4% in 1993 and 35.4% in 1992. The banking industry as well as the
Corporation continues to pursue new business opportunities which generate fee
income and are not subject to interest rate volatility.
NON-INTEREST EXPENSE
Non-interest expense increased 3.9% in 1994 compared to 1993 after a 9.5%
increase for 1993 compared to 1992.
<TABLE>
OTHER EXPENSES
<CAPTION>
1994 1993 1992
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and wages.................................. $ 66,030 62,578 57,564
Pension and benefits................................ 20,622 19,399 15,370
-------- ------- -------
Salaries, wages, pension and benefits............... 86,652 81,977 72,934
Net occupancy expense............................... 12,738 11,619 10,731
Equipment expense................................... 9,978 10,697 10,167
Taxes, other than federal income taxes.............. 6,089 5,253 5,304
Stationery, supplies and postage.................... 7,667 6,986 6,205
Bankcard, loan processing and other fees............ 8,873 11,070 8,797
Advertising......................................... 2,665 2,755 2,342
Professional services............................... 4,450 4,174 3,232
Telephone........................................... 2,787 2,494 2,153
FDIC assessment..................................... 8,260 7,380 7,197
Amortization of intangibles......................... 3,878 3,485 3,539
Other operating expenses............................ 12,949 12,877 14,189
-------- ------- -------
Total other expenses................................ $166,986 160,767 146,790
======== ======= =======
</TABLE>
Salaries and wages totaled $66.0 million in 1994, an increase of 5.5% or
$3.5 million. For 1994, salaries and wages accounted for 39.5% of operating
expenses compared to 38.9% and 39.2% in 1993 and 1992, respectively. Pension and
benefits expense increased $1.2 million in 1994 compared to one year ago or
6.3%. In 1994 the Corporation spent 31.2 cents in benefits for every dollar of
salaries and wages compared to 31 cents in 1993 and 26.7 cents in 1992. 1992
benefit expense does not include provisions for postretirement benefits
discussed below.
During 1993 the Corporation adopted the Financial Accounting Standards
Board Statement No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 106 requires that the cost of all postretirement
benefits expected to be provided by an employer to current and future retirees
be accrued over those employees' service periods.
16
<PAGE> 18
The Corporation has a benefit plan which presently provides postretirement
medical and life insurance for retired employees. The Corporation reserves the
right to terminate or make additional plan changes at any time.
The Corporation's accumulated postretirement benefit obligation (APBO) as
of January 1, 1993 totaled $19.0 million, and is being amortized over twenty
years at an annual cost of $.9 million.
Occupancy increased from $11.6 million in 1993 to $12.7 million in 1994, an
increase of $1.1 million. This increase primarily was due to the acquisition and
renovation of a new Corporate headquarters in 1994 and the completion of the
renovation of several subsidiary bank buildings.
On January 1, 1994 the FDIC implemented a risk-based assessment system for
depository institutions. Under the system, the annual assessment rate for each
insured institution is determined on the basis of both capital and supervisory
measures, and can range from $.23 per $100.00 of deposits to $.31 per $100.00 of
deposits, depending on the capital and supervisory strength of the institution.
Total premiums paid by the Corporation during 1994 were $8.3 million compared to
$7.4 million and $7.2 million in 1993 and 1992, respectively.
Various legislative proposals concerning the banking industry and
regulatory reform are pending including a possible decrease in the FDIC
insurance assessment. Given the uncertainty of the legislative and regulatory
process, Management cannot assess the impact of such legislation on the
Corporation's financial condition or results of operations.
FEDERAL INCOME TAX
Federal income tax expense totaled $26.1 million in 1994 compared to $26.6
million in 1993 and $23.7 million in 1992. In 1994 the effective federal income
tax rate for the Corporation equaled 30.2% compared to 32.3% in 1993 and 30.8%
in 1992. One of the factors which continues to affect the effective tax rate is
the Tax Reform Act of 1986 which raised the disallowance of interest cost on
funds employed to carry most tax-exempt securities and loans acquired after
August 7, 1986 from 20% to 100%. The result is that a greater proportion of
pre-tax earnings is subject to federal income tax. The Corporation continues to
invest in obligations of the local communities it serves.
On August 10, 1993 Congress enacted the Omnibus Budget Reconciliation Act
of 1993 which included among its provisions an increase in the statutory rate
from 34% to 35%. Other provisions which impact the Corporation include changes
in the deductibility of certain business expenses, changes in determining
benefits and contributions under its qualified retirement plan, and the ability
to depreciate future intangible assets.
INVESTMENT SECURITIES
The investment portfolio is maintained by the Corporation to provide
liquidity, earnings, and a means of diversifying risk. The Financial Accounting
Standards Board issued Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" effective January 1, 1994. The statement requires
debt and equity securities to be classified as held-to-maturity,
available-for-sale, or trading. Securities classified as held-to-maturity are
measured at amortized or historical cost, securities available-for-sale and
trading are measured at fair value. Adjustment to fair value of the securities
available-for-sale, in the form of unrealized holding gains and losses, is
excluded from earnings and reported as a net amount in a separate component of
shareholders' equity. Adjustment to fair value of securities classified as
trading is included in earnings.
At December 31, 1994 investment securities totaled $1,377.5 million
compared to $1,340.2 million one year ago, an increase of 2.8%. Investment
securities totaled $1,333.3 million at December 31, 1992.
During 1994 approximately $49.2 million of investment securities were sold
for which a $76 thousand net loss was realized.
A summary of investment securities' carrying value is presented below as of
December 31, 1994, 1993 and 1992. Presented with the summary is a maturity
distribution schedule with corresponding weighted
17
<PAGE> 19
average yields. The schedule reflects the liquidity within the investment
securities portfolio as 20.9% of the total securities have maturities of one
year or less.
<TABLE>
CARRYING VALUE OF INVESTMENT SECURITIES
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities....................... $ 361,704 293,970 340,100
U.S. Government agency obligations............. 582,275 489,001 277,574
Obligations of states and political
subdivisions................................. 129,280 147,673 133,747
Mortgage-backed securities..................... 212,642 336,963 493,432
Other securities............................... 91,607 72,606 88,487
---------- --------- ---------
$1,377,508 1,340,213 1,333,340
========== ========= =========
</TABLE>
<TABLE>
MATURITIES OF THE INVESTMENT SECURITIES AT DECEMBER 31, 1994
<CAPTION>
OVER ONE YEAR OVER FIVE YEARS
ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS OVER TEN YEARS
------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELDS AMOUNT YIELDS AMOUNT YIELDS AMOUNT YIELDS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............ $193,966 5.22% 167,738 5.72% -- -- -- --
U.S. Government agency
obligations....................... 43,715 6.66% 155,906 6.02% 45,134 6.37% 337,520 7.73%
Obligations of states and political
subdivisions...................... 48,199 8.29%* 55,809 7.77%* 17,846 7.58%* 7,426 9.10%*
Mortgage-backed securities.......... 407 8.50% 38,298 5.85% 29,327 7.76% 144,610 6.87%
Other securities.................... 2,198 6.58% 13,975 6.99% 13,947 6.37% 61,487 6.52%
-------- -------- -------- -------- -------- -------- -------- --------
$288,485 5.95% 431,726 6.15% 106,254 6.96% 551,043 7.39%
======== ======== ======== ======== ======== ======== ======== ========
Percent of total.................... 20.94% 31.34% 7.71% 40.01%
======== ======== ======== ========
<FN>
- ---------------
*Fully-taxable equivalent based upon federal income tax structure applicable at
December 31, 1994.
</TABLE>
The yield on the portfolio fell to 6.15% in 1994 compared to 6.55% in 1993
and 7.53% in 1992.
With lower market interest rates through mid-1994 and the Tax Reform Act of
1986, which reduced the tax benefit of obligations of state and municipalities,
the Corporation continued to look at alternative investments to increase yield
while maintaining its soundness. Obligations of U.S. Government agencies,
mortgage-backed securities, collateral mortgage obligations (CMOs) along with
asset-backed securities provided increased yields and accounted for
approximately 64.4% of the investment portfolio compared to 67.0% and 61.3% in
1993 and 1992 respectively.
At December 31, 1994, the investment portfolio had a carrying value of
$1,377.5 million and a market value of $1,358.3 million compared to $1,340.2
million and $1,356.1 million, respectively in 1993.
During 1994 the use of various financial instruments such as derivatives
received considerable attention. While mortgage-backed securities and CMOs are
considered derivatives, the Corporation does not have any other forms of
financial derivatives, such as swaps and caps as hedges or investments. In
addition, the CMOs within the Corporation's investment portfolio tend to be the
early tranches of the instruments.
18
<PAGE> 20
LOANS
<TABLE>
Total loans outstanding at December 31, 1994 increased 20.9% compared to
one year ago or $3,179.9 million compared to $2,631.2 million. A breakdown by
category is presented below, along with a maturity summary of commercial,
financial, and agricultural loans.
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $ 467,428 430,118 423,170 403,238 408,403 478,165
Installments to individuals.... 776,757 608,615 530,661 530,277 539,940 574,843
Real estate.................... 1,777,082 1,535,801 1,558,206 1,527,222 1,446,925 1,332,065
Lease financing................ 158,659 56,682 19,001 16,249 13,664 15,367
---------- --------- --------- --------- --------- ---------
Total loans.................. 3,179,926 2,631,216 2,531,038 2,476,986 2,408,932 2,400,440
Less allowance for possible
loan losses.................. 33,108 32,338 29,695 25,262 24,318 21,569
---------- --------- --------- --------- --------- ---------
Net loans.................... $3,146,818 2,598,878 2,501,343 2,451,724 2,384,614 2,378,871
========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------
COMMERCIAL, FINANCIAL AND
AGRICULTURAL
-------------------------
<S> <C>
Due in one year or less......................................................... $ 284,813
Due after one but within five years............................................. 126,517
Due after five years............................................................ 56,098
---------
Total....................................................................... $ 467,428
=========
Loans due after one year with interest at a predetermined fixed rate............ $ 97,871
Loans due after one year with interest at a floating rate....................... 84,744
---------
Total....................................................................... $ 182,615
=========
</TABLE>
Real estate loans at December 31, 1994 totaled $1,777.1 million or 55.9% of
total loans outstanding compared to 58.4% one year ago. Residential loans (1-4
family dwellings) totaled $1,037.1 million, home equity loans $100.7 million,
construction loans $58.9 million and commercial real estate loans $580.4
million.
Commercial real estate loans include both commercial loans where real
estate has been taken as collateral and loans for commercial real estate. The
majority of the commercial real estate loans look to the tenants' business for
cash flow to service the debt and not to rents of the building itself. These
loans are generally a part of an overall relationship with existing customers
primarily within northeast Ohio.
Consumer loans or loans to individuals increased 27.6% compared to one year
ago and accounted for 24.4% of total loans compared to 23.1% in 1993. Lease
financing increased from $56.7 million in 1993 to $158.7 million at December 31,
1994 or 5.0% of total loans outstanding. Auto leasing totaled $97.1 million with
equipment leasing totaling $61.6 million at December 31, 1994.
There are no loans outstanding which in total could be considered a
concentration of lending in any particular industry or group of industries. Most
of the Corporation's business activity is with customers located within the
state of Ohio.
In October 1994, the Financial Accounting Standards Board issued Statement
No. 118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures" ("SFAS No. 118"). SFAS No. 118 amends Statement of Financial
Accounting Standard No. 114, which is effective for fiscal years beginning after
December 15, 1994 and prescribes how the allowance for loan losses related to
impaired loans should be determined and the required disclosures. Impaired loans
are loans for which, based on current information or events, it is probable that
a creditor will be unable to collect all amounts due according to the
contractual
19
<PAGE> 21
terms of the loan agreement. Impaired loans must be valued based on the present
value of the loans' expected future cash flows at the loans' effective interest
rates, at the loans' observable market price, or the fair value of the loan
collateral. The adoption of this standard is not expected to have a material
impact on the financial condition, results of operations or disclosures of the
Corporation.
ASSET QUALITY
Credit risk is managed through the Corporation's loan policy which provides
the Credit Risk Management Division of the Parent Company the responsibility for
managing asset quality. The Division's responsibilities include the development
of credit policies to ensure sound credit decisions, loan review, early
identification of problem loans, and overseeing loan workouts in subsidiary
banks.
The Corporation's credit policies and review procedures are meant to
minimize the risk and uncertainties inherent in lending. In following these
policies and procedures, Management must rely upon estimates, appraisals, and
evaluations of loans and the possibility that changes in such estimates,
appraisals and evaluations could occur quickly because of changing economic
conditions and the economic prospects of borrowers.
NON-PERFORMING ASSETS
Non-performing assets consist of loans on non-accrual, loans which have
been restructured and other real estate, which are defined as follows:
- Non-accrual loans are loans which are 90 days past due and with respect
to which, in Management's opinion, collection of interest is doubtful.
These loans no longer accrue interest and are accounted for on a cash
basis.
- Loans are classified as restructured when, due to the deterioration of a
customer's financial ability, the original terms have been favorably
modified or either principal or interest has been forgiven.
- Other real estate consists of real estate acquired through foreclosure as
satisfaction of debt and loans for which, in Management's opinion,
in-substance foreclosure has occurred.
Loans which are 90 days or more past due but continue to accrue interest
are loans which, in Management's opinion, are well secured and are in the
process of collection. Non-performing assets at December 31, 1994 totaled $15.4
million, down from $22.0 million in 1993 and $38.3 million in 1992. As a percent
of total loans outstanding, non-performing assets were .49% in 1994 compared to
.84% in 1993 and 1.51% in 1992.
For the year ended December 31, 1994 interest income that would have been
earned had these loans not been classified as non-accrual or restructured
amounted to $793,000. The interest income actually earned on these loans
amounted to $445,000.
In addition to the loans classified as non-performing or past due 90 days
or more accruing interest, there were $24.5 million at December 31, 1994 that
Management believes to be potential problem loans. The loans are closely
monitored by the Credit Risk Management Division to assess the borrowers'
ability to comply with
20
<PAGE> 22
the terms of the loans. Management's most recent review indicates that a charge
against the allowance for possible loan losses or classification as
non-performing is not warranted for these loans at this time.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990 1989
------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............................. $12,899 9,927 19,587 20,181 27,278 23,445
Restructured loans............................ 1,747 5,882 3,972 7,049 13,280 8,561
------- ------ ------ ------ ------ ------
Total non-performing loans................ 14,646 15,809 23,559 27,230 40,558 32,006
Other real estate owned....................... 799 6,164 14,777 13,430 6,418 9,049
------- ------ ------ ------ ------ ------
Total non-performing assets............... $15,445 21,973 38,336 40,660 46,976 41,055
======= ====== ====== ====== ====== ======
Loans past due 90 days or more accruing
interest.................................... $ 3,569 2,830 6,593 5,843 8,304 8,013
======= ====== ====== ====== ====== ======
Total non-performing assets as a percent of
total loans................................. .49% .84% 1.51% 1.64% 1.95% 1.71%
======= ====== ====== ====== ====== ======
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation's policy is to maintain the allowance for possible loan
losses at a level considered by Management to be adequate for potential future
losses. The evaluation performed by the Credit Risk Management Division of the
Parent Company is based upon a continuous review of delinquency trends; the
amount of non-performing loans (non-accrual, restructured, and other real estate
owned); loans past due 90 days or more and classified loans; historical and
present trends in loans charged-off; changes in the composition and level of
various loan categories; and current economic conditions.
At December 31, 1994, the allowance for possible loan losses was $33.1
million or 1.04% of loans outstanding compared to $32.3 million or 1.23% in 1993
and $29.7 million or 1.17% in 1992. The allowance for loan losses coverage of
non-performing assets equalled 214.4% at December 31, 1994 and 8.97 times 1994
net charge-offs.
Net charge-offs for 1994 were $3.7 million, down from $4.6 million and
$13.2 million in 1993 and 1992, respectively. As a percent of average loans
outstanding, net charge-offs dropped from .18% and .53% in 1993 and 1992,
respectively, to .13% in 1994. Management continues to believe that loans should
be charged against the allowance for possible loan losses as soon as losses are
identified.
21
<PAGE> 23
<TABLE>
A six year summary of loan losses follows:
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance for possible loan losses at
beginning of year........................ $ 32,338 29,695 25,262 24,318 21,569 19,108
Loans charged off:
Commercial, financial and agricultural... 1,479 1,686 5,873 3,131 3,559 2,164
Installment to individuals............... 1,752 1,794 7,940 7,197 8,362 5,917
Real estate.............................. 4,316 5,086 3,471 3,494 529 510
Lease financing.......................... 19 28 79 146 153 19
---------- --------- --------- --------- --------- ---------
Total.................................. 7,566 8,594 17,363 13,968 12,603 8,610
---------- --------- --------- --------- --------- ---------
Recoveries:
Commercial, financial and agricultural... 719 1,334 1,068 711 1,062 840
Installment to individuals............... 3,029 2,548 2,518 2,250 2,165 1,261
Real estate.............................. 106 84 528 104 90 75
Lease financing.......................... 21 32 25 20 56 3
---------- --------- --------- --------- --------- ---------
Total.................................. 3,875 3,998 4,139 3,085 3,373 2,179
---------- --------- --------- --------- --------- ---------
Net charge-offs............................ 3,691 4,596 13,224 10,883 9,230 6,431
---------- --------- --------- --------- --------- ---------
Provision for possible loan losses......... 4,461 7,239 17,657 11,827 11,979 8,892
---------- --------- --------- --------- --------- ---------
Allowance for possible loan losses at end
of year.................................. $ 33,108 32,338 29,695 25,262 24,318 21,569
========== ========= ========= ========= ========= =========
Average loans outstanding.................. $2,845,302 2,597,174 2,491,314 2,422,992 2,410,119 2,353,537
========== ========= ========= ========= ========= =========
Ratio to average loans:
Net charge-offs.......................... 0.13% 0.18% 0.53% 0.45% 0.38% 0.27%
Provision for possible loan losses....... 0.16% 0.28% 0.71% 0.49% 0.50% 0.38%
Allowance for possible loan losses at end
of year................................ 1.16% 1.25% 1.19% 1.04% 1.01% 0.92%
========== ========= ========= ========= ========= =========
Loans outstanding at end of year........... $3,179,926 2,631,216 2,531,038 2,476,986 2,408,932 2,400,440
========== ========= ========= ========= ========= =========
Allowance for possible loan losses:
As a percent of loans outstanding at end
of year................................ 1.04% 1.23% 1.17% 1.02% 1.01% 0.90%
As a multiple of net charge-offs......... 8.97x 7.04x 2.25x 2.32x 2.63x 3.35x
========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
AS OF DECEMBER 31, 1994
-----------------------------
CATEGORY OF LOANS
AS PERCENT OF
AMOUNT OUTSTANDINGS
------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural............... $6,341 19.2%
Real estate........................................... 13,823 41.7%
Installment........................................... 12,245 37.0%
Lease financing....................................... 699 2.1%
------- -----
$33,108 100.0%
======= =====
</TABLE>
DEPOSITS
Average deposits in 1994 increased 1.3% compared to 1993 as market interest
rates continued at their lowest level in over 30 years through the first half of
1994. Total deposits averaged $3,758.0 million in 1994 compared to $3,710.4
million and $3,553.3 million in 1993 and 1992, respectively.
As market interest rates continued their downward trend throughout the
first half of 1994, the mix of deposits continued to shift toward the more
liquid types of deposits. Later in the year, as market interest rates increased,
deposits started shifting back to certificates of deposits as rates provided a
premium compared to the rates on transaction accounts. The average yield on
certificates and other time deposits was 4.19% in 1994, 4.17% in 1993 and 5.15%
in 1992.
22
<PAGE> 24
Certificates and other time deposits accounted for 36.4% of average
deposits in 1994 compared to 37.4% in 1993. Savings equaled 37.2% and 36.9% in
1994 and 1993, respectively, and demand deposits, both interest and non-interest
bearing, was 26.4% and 25.7%, respectively.
Savings deposits increased 1.95% compared to one year ago and represent
37.2% of total deposits. Interest bearing demand deposits increased 6.3%,
totaling 8.7% of deposits as the average rate dropped to 2.20%. Non-interest
bearing demand deposits totaled $666.5 million, an increase of 3.7%, and
represented 17.7% of total deposits.
The average cost of deposits was down 13 basis points compared to one year
ago, or 2.64% compared to 2.77%.
Based upon prior interest rate cycles, deposits are expected to continue to
move back into certificates of deposits as interest rates rise, to obtain a
premium for investing in longer term certificates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992
-------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ------- --------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand
deposits -- non-interest
bearing..................... $ 666,469 -- 642,830 -- 538,722 --
Demand deposits -- interest
bearing..................... 328,584 2.20% 309,172 2.38% 302,438 2.93%
Savings deposits.............. 1,396,228 2.49% 1,369,469 2.75% 1,199,591 3.32%
Certificates and other time
deposits.................... 1,366,724 4.19% 1,388,920 4.17% 1,512,571 5.15%
---------- --------- ---------
$3,758,005 3,710,391 3,553,322
========== ========= =========
</TABLE>
<TABLE>
The following table summarizes the certificates and other time deposits in
amounts of $100,000 or more as of December 31, 1994, by time remaining until
maturity.
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Maturing in:
Under 3 months........................................................ $109,813
3 to 6 months......................................................... 26,028
6 to 12 months........................................................ 13,990
Over 12 months........................................................ 59,499
--------
$209,330
========
</TABLE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity measures the potential exposure of earnings and
capital to changes in market interest rates. The Corporation has a policy which
provides guidelines in the management of interest rate risk. This policy is
reviewed periodically to ensure it complies with trends within the financial
markets and within the industry.
The analysis presented below divides interest bearing assets and
liabilities into maturity categories and measures the "GAP" between maturing
assets and liabilities in each category. The Corporation analyzes the historical
sensitivity of its interest bearing transaction accounts to determine the
portion which it classifies as interest rate sensitive versus the portion
classified over one year. The analysis shows that liabilities maturing within
one year exceed assets maturing within the same period by a moderate amount. The
Corporation uses the GAP analysis and other tools to monitor rate risk.
23
<PAGE> 25
<TABLE>
At December 31, 1994 the Corporation was in a moderate liability-sensitive
position as illustrated in the following table:
<CAPTION>
31-60 61-90 91-180 181-365 OVER 1
1-30 DAYS DAYS DAYS DAYS DAYS YEAR TOTAL
---------- ------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loan and leases................. $ 796,825 108,850 93,904 209,372 313,677 1,624,190 3,146,818
Investment securities........... 179,263 55,186 13,287 96,321 211,884 821,567 1,377,508
Federal funds sold.............. 3,851 -- -- -- -- -- 3,851
---------- ------- -------- -------- -------- --------- ---------
Total Interest Earning Assets..... $ 979,939 164,036 107,191 305,693 525,561 2,445,757 4,528,177
---------- ------- -------- -------- -------- --------- ---------
Interest Bearing Liabilities:
Demand -- Interest bearing...... $ 22,806 5,378 5,378 16,134 32,268 264,960 346,924
Savings......................... 57,942 20,800 291,144 62,400 124,800 767,356 1,324,442
Certificates and other time
deposits...................... 389,195 107,261 110,977 259,233 227,072 364,551 1,458,289
Securities sold under agreement
to repurchase and other
borrowings.................... 530,297 20,015 15 3,221 24,442 24,832 602,822
---------- ------- -------- -------- -------- --------- ---------
Total Interest Bearing
Liabilities..................... $1,000,240 153,454 407,514 340,988 408,582 1,421,699 3,732,477
---------- ------- -------- -------- -------- --------- ---------
Total GAP......................... $ (20,301) 10,582 (300,323) (35,295) 116,979 1,024,058 795,700
========== ======= ======== ======== ======== ========= =========
Cumulative GAP.................... $ (20,301) (9,719) (310,042) (345,337) (228,358) 795,700
========== ======= ======== ======== ======== =========
</TABLE>
CAPITAL RESOURCES
Shareholders' equity at December 31, 1994 totaled $431.5 million compared
to $417.2 million at December 31, 1993, an increase of 3.4%. Shareholders'
equity at December 31, 1994 includes a ($23.2) million market value adjustment
per SFAS No. 115 discussed earlier, otherwise equity would show a 9.0% increase
compared to one year ago.
The following table reflects the various measures of capital:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total equity............................ $431,538 8.76% $417,160 9.52% $383,875 8.92%
Common equity........................... 431,538 8.76% 417,160 9.52% 383,875 8.92%
Tangible common equity (a).............. 412,556 8.41% 398,093 9.13% 361,617 8.45%
Tier 1 capital (b)...................... 423,013 13.36% 406,850 15.17% 371,733 13.96%
Total risk-based capital (c)............ 456,121 14.40% 439,188 16.38% 401,428 15.07%
Leverage (d)............................ 423,013 8.74% 406,850 9.27% 371,733 8.80%
<FN>
- ---------------
a) Common equity less all intangibles; computed as a ratio to total assets less
intangible assets.
b) Shareholders' equity less goodwill; computed as a ratio to risk-adjusted
assets, as defined in the 1992 risk-based capital guidelines.
c) Tier 1 capital plus qualifying loan loss allowance, computed as a ratio to
risk-adjusted assets, as defined in the 1992 risk-based capital guidelines.
d) Tier 1 capital; computed as a ratio to the latest quarter's average assets
less goodwill.
</TABLE>
FDICIA, which was enacted on December 19, 1991, set the capital guidelines
for a financial institution to be considered "well-capitalized." These
guidelines require a risk-based capital ratio of 10%, a Tier 1 capital ratio of
6% and a leverage ratio of 5%. At December 31, 1994 the Corporation's risk-based
capital equaled 14.40% of risk-adjusted assets, a Tier 1 capital ratio of 13.36%
and a leverage ratio of 8.74%.
The Corporation's Board of Directors declared a 2-for-1 split of the
Corporation's common stock on August 19, 1993. The split was paid to
shareholders of record as of August 30, 1993.
24
<PAGE> 26
During 1994 the Corporation's Directors increased the quarterly cash
dividend, marking the thirteenth consecutive year of annual increases since the
Corporation's formation in 1981. The cash dividend of $.25 paid has an indicated
annual rate of $1.00 per share. Over the past five years the dividend has
increased at an annual rate of 8.2%.
LIQUIDITY
The Corporation's primary source of liquidity is its strong core deposit
base, raised through its retail branch system, along with a strong capital base.
These funds, along with investment securities, provide the ability to meet the
needs of depositors while funding new loan demand and existing commitments.
The banking subsidiaries individually maintain sufficient liquidity in the
form of temporary investments and a short-term maturity structure within the
investment portfolio, along with cash flow from loan repayment. Asset growth in
the banking subsidiaries is funded by the growth of core deposits.
Loan demand increased significantly during the second half of 1994 while
deposit growth remained relatively flat. As a result much of the loan growth was
funded by short term borrowing such as Federal Home Loan Bank advances, Federal
Funds purchased, and securities sold under agreement to repurchase. The
Corporation intends, through one of its banking subsidiaries, to implement a
bank note program which would be available to fund future loan demand.
The liquidity needs of the Parent Company, primarily cash dividends and
other corporate purposes, are met through cash, short term investments and
quarterly dividends from banking subsidiaries.
Management is not aware of any trend or event, other than noted above, that
will result in or that is reasonably likely to occur that would result in a
material increase or decrease in the Corporation's liquidity.
REGULATION AND SUPERVISION
A strict uniform system of capital-based regulation of financial
institutions became effective on December 19, 1992. Under this system, there are
five different categories of capitalization, with "prompt corrective actions"
and significant operational restrictions imposed on institutions that are
capital deficient under the categories. The five categories are: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
To be considered well capitalized an institution must have a total
risk-based capital ratio of at least 10%, a Tier 1 capital ratio of at least 6%,
a leverage capital ratio of 5%, and must not be subject to any order or
directive requiring the institution to improve its capital level. An adequately
capitalized institution has a total risk-based capital ratio of at least 8%, a
Tier 1 capital ratio of at least 4% and a leverage capital ratio of at least 4%.
Institutions with lower capital levels are deemed to be undercapitalized,
significantly undercapitalized or critically undercapitalized, depending on
their actual capital levels. The appropriate federal regulatory agency may also
downgrade an institution to the next lower capital category upon a determination
that the institution is in an unsafe or unsound condition or is engaged in an
unsafe or unsound practice. Institutions are required to monitor closely their
capital levels and to notify their appropriate regulatory agency of any basis
for a change in capital category. At December 31, 1994, the Parent Company and
its subsidiaries all exceeded the minimum capital levels of the well capitalized
category.
EFFECTS OF INFLATION
The assets and liabilities of the Corporation are primarily monetary in
nature and are more directly affected by the fluctuation in interest rates than
inflation. Movement in interest rates is a result of the perceived changes in
inflation as well as monetary and fiscal policies. Interest rates and inflation
do not move with the same velocity or within the same time frame; therefore, a
direct relationship to the inflation rate cannot be shown. The financial
information presented in this annual report, based on historical data, has a
direct correlation to the influence of market levels of interest rates.
Therefore, Management believes that there is no material benefit in presenting a
statement of financial data adjusted for inflationary changes.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and accompanying notes, and the
reports of management and independent auditors, are set forth immediately
following Item 9 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
FirstMerit has had no disagreement with its accountants on accounting and
financial disclosure matters and has not changed accountants during the two year
period ending December 31, 1994.
26
<PAGE> 28
<TABLE>
CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investment securities, market value $1,358,336 and $1,356,092,
respectively.................................................... $1,377,508 1,340,213
Federal funds sold................................................. 3,851 68,050
Loans.............................................................. 3,179,926 2,631,216
Less allowance for possible loan losses............................ 33,108 32,338
---------- ----------
Net loans..................................................... 3,146,818 2,598,878
---------- ----------
Total earning assets.......................................... 4,528,177 4,007,141
---------- ----------
Cash and due from banks............................................ 222,527 225,226
Premises and equipment, net........................................ 77,319 71,271
Accrued interest receivable and other assets....................... 96,134 76,645
---------- ----------
$4,924,157 4,380,283
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand--non-interest bearing.................................... $ 733,171 694,610
Demand--interest bearing........................................ 346,924 329,150
Savings......................................................... 1,324,442 1,403,784
Certificates and other time deposits............................ 1,458,289 1,318,068
---------- ----------
Total deposits................................................ 3,862,826 3,745,612
---------- ----------
Securities sold under agreements to repurchase and other
borrowings...................................................... 602,822 185,571
Accrued taxes, expenses, and other liabilities..................... 26,971 31,940
---------- ----------
Total liabilities............................................. 4,492,619 3,963,123
---------- ----------
Commitments and contingencies...................................... -- --
Shareholders' equity:
Preferred stock, without par value:
authorized and unissued 7,000,000 shares...................... -- --
Common stock, without par value:
authorized 80,000,000 shares; issued 27,166,271 and 27,131,471
shares, respectively......................................... 88,012 84,241
Net unrealized holding losses on available-for-sale
securities..................................................... (23,205) --
Retained earnings............................................... 366,731 332,919
---------- ----------
Total shareholders' equity.................................... 431,538 417,160
---------- ----------
$4,924,157 4,380,283
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $233,642 219,692 229,776
Interest and dividends on investment securities:
Taxable............................................... 73,960 74,401 82,038
Exempt from federal income taxes...................... 7,411 7,804 8,388
-------- -------- --------
81,371 82,205 90,426
Interest on federal funds sold........................... 1,796 2,692 3,395
-------- -------- --------
Total interest income............................... 316,809 304,589 323,597
-------- -------- --------
Interest expense:
Interest on deposits:
Demand--interest bearing.............................. 7,242 7,371 8,861
Savings............................................... 34,716 37,650 39,874
Certificates and other time deposits.................. 57,278 57,884 77,972
Interest on securities sold under agreements to
repurchase and other borrowings....................... 16,641 6,882 7,404
-------- -------- --------
Total interest expense.............................. 115,877 109,787 134,111
-------- -------- --------
Net interest income................................. 200,932 194,802 189,486
Provision for possible loan losses......................... 4,461 7,239 17,657
-------- -------- --------
Net interest income after provision for possible
loan losses...................................... 196,471 187,563 171,829
-------- -------- --------
Other income:
Trust department......................................... 13,423 9,907 9,103
Service charges on deposits.............................. 19,674 20,687 20,089
Credit card fees......................................... 8,226 7,987 7,317
Investment securities gains (losses), net................ (76) 29 1,368
Other operating income................................... 15,629 16,710 14,074
-------- -------- --------
Total other income.................................. 56,876 55,320 51,951
-------- -------- --------
253,347 242,883 223,780
-------- -------- --------
Other expenses:
Salaries and wages....................................... 66,030 62,578 57,564
Pension and employee benefits............................ 20,622 19,399 15,370
Net occupancy expense.................................... 12,738 11,619 10,731
Equipment expense........................................ 9,978 10,697 10,167
Other operating expenses................................. 57,618 56,474 52,958
-------- -------- --------
Total other expenses................................ 166,986 160,767 146,790
-------- -------- --------
Income before federal income taxes.................. 86,361 82,116 76,990
Federal income taxes....................................... 26,060 26,556 23,717
-------- -------- --------
Net income.......................................... $ 60,301 55,560 53,273
======== ======== ========
Weighted average number of common shares outstanding....... 27,152 27,101 27,040
======== ======== ========
Net income per share....................................... $ 2.22 2.05 1.97
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<CAPTION>
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------------------------
NET UNREALIZED
HOLDING LOSSES TOTAL
COMMON AVAILABLE-FOR- RETAINED SHAREHOLDERS'
STOCK SURPLUS SALE SECURITIES EARNINGS EQUITY
------- ------- --------------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991......... $42,537 39,674 -- 269,021 351,232
Net income......................... -- -- -- 53,273 53,273
Cash dividends ($.79 per share).... -- -- -- (21,449) (21,449)
Stock options exercised............ 122 697 -- -- 819
------- ------- ------- -------- --------
Balance at December 31, 1992......... 42,659 40,371 -- 300,845 383,875
Net income......................... -- -- -- 55,560 55,560
Cash dividends ($.87 per share).... -- -- -- (23,486) (23,486)
Stock options exercised............ 1,211 -- -- -- 1,211
Elimination of par value........... 40,371 (40,371) -- -- --
------- ------- ------- -------- --------
Balance at December 31, 1993......... 84,241 -- -- 332,919 417,160
Net income......................... -- -- -- 60,301 60,301
Cash dividends ($.98 per share).... -- -- -- (26,489) (26,489)
Stock options exercised............ 3,771 -- -- -- 3,771
Market adjustment investment
securities...................... -- -- (23,205) -- (23,205)
------- ------- ------- -------- --------
Balance at December 31, 1994......... $88,012 -- (23,205) 366,731 $431,538
======= ======= ======= ======== ========
</TABLE>
On December 15, 1994, the shareholders of the Corporation approved
amendments to its Articles of Incorporation to increase the authorized common
stock from 40 million to 80 million shares and to increase the authorized
preferred stock from 3.5 million to 7.0 million shares.
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 60,301 55,560 53,273
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses.............................. 4,461 7,239 17,657
Provision for depreciation and amortization............ 7,543 6,723 7,050
Amortization of investment securities premiums, net.... 2,863 6,171 5,411
Amortization of income for lease financing............. (6,810) (2,620) (1,649)
(Loss) gains on sales of investment securities, net.... 76 (29) (1,368)
Deferred federal income taxes.......................... 11,209 (109) (3,860)
(Increase) decrease in interest receivable............. (5,501) 2,984 4,356
Increase (decrease) in interest payable................ 3,714 (1,227) (7,464)
Amortization of values ascribed to acquired
intangibles.......................................... 3,878 3,485 3,539
Other increases (decreases)............................ (25,258) 171 7,842
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 56,476 78,348 84,787
--------- --------- ---------
INVESTING ACTIVITIES
Dispositions of investment securities:
Available-for-sale--sales................................. 49,257 28,072 96,912
Held-to-maturity--maturities.............................. 389,234 -- --
Available-for-sale--maturities............................ 113,657 689,598 485,817
Purchases of investment securities held-to-maturity......... (263,518) -- --
Purchases of investment securities available-for-sale....... (364,569) (732,231) (694,049)
Net (increase) decrease in federal funds sold............... 64,199 28,132 (10,519)
Net increase in loans and leases............................ (545,591) (102,153) (66,060)
Purchases of premises and equipment......................... (16,802) (10,449) (5,569)
Sales of premises and equipment............................. 3,211 1,578 1,070
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES....................... (570,922) (97,453) (192,398)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in demand, NOW and savings
deposits.................................................. (23,007) 153,112 350,615
Net increase (decrease) in time deposits.................... 140,221 (111,436) (204,411)
Net increase in securities sold under repurchase agreements
and other borrowings...................................... 417,251 10,394 3,648
Cash dividends.............................................. (26,489) (23,486) (21,449)
Proceeds from exercise of stock options..................... 3,771 1,211 819
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 511,747 29,795 129,222
Increase (decrease) in cash and cash equivalents............ (2,699) 10,690 21,611
Cash and cash equivalents at beginning of year.............. 225,226 214,536 192,925
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 222,527 225,226 214,536
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amount capitalized....................... $ 73,527 74,555 90,612
Income taxes.............................................. 27,424 28,900 24,954
========= ========= =========
*Note -- The investment portfolio was not classified as held-to-maturity or
available-for-sale until fiscal year beginning 1994. The investment securities
cash flow information for fiscal years 1993 and 1992 is classified as
available-for-sale in the above analysis.
See accompanying notes to consolidated financial statements.
</TABLE>
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FirstMerit Corporation and its
subsidiaries (the "Corporation") conform to generally accepted accounting
principles and to general practices within the banking industry. On December 15,
1994 the shareholders approved a change in the name of the Corporation from
First Bancorporation of Ohio to FirstMerit Corporation. The Corporation's
activities are considered to be a single industry segment for financial
reporting purposes. The following is a description of the more significant
accounting policies:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
FirstMerit Corporation (the "Parent Company") and its wholly-owned
subsidiaries: First National Bank of Ohio, The Old Phoenix National
Bank of Medina, Elyria Savings & Trust National Bank, The First
National Bank in Massillon, Peoples National Bank, Peoples Bank, N.A.,
Life Savings Bank, FSB, FBOH Credit Life Insurance Company, FBOH
Community Development Corporation and Bancorp Trust Co., N.A. All
significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Investment Securities
The Corporation adopted Statement of Financial Accounting Standards No.
115 in 1994. The statement requires debt and equity securities to be
classified as held-to-maturity, available-for-sale, or trading.
Securities classified as held-to-maturity are measured at amortized or
historical cost, securities available-for-sale and trading at fair
value. Adjustment to fair value of the securities available-for-sale,
in the form of unrealized holding gains and losses, is excluded from
earnings and reported net of tax amount in a separate component of
shareholders' equity. Adjustment to fair value of securities classified
as trading is included in earnings. Gains or losses on the sales of
investment securities are recognized upon realization and are
determined by the specific identification method.
Effective January 1, 1994, the Corporation designated the core portion
of its investment portfolio as held-to-maturity. This core portfolio is
characterized by securities that will provide satisfactory earnings
over a relatively wide band of interest rate movement and time frame.
The Corporation has the ability to hold investment securities to
maturity and it is Management's intent to hold these securities to
maturity. The remaining investment securities were designated as
available-for-sale because these securities may be sold under certain
circumstances to fund liquidity and to manage the Corporation's
interest rate risk. The Corporation does not maintain a trading
account.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances on deposit
with correspondent banks and checks in the process of collection.
(d) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed on the straight-line and
declining-balance methods over the estimated useful lives of the
assets. Amortization of leasehold improvements is computed on the
straight-line method based on lease terms or useful lives, whichever is
less.
(e) Interest and Fees on Loans
Interest income on loans is generally accrued on the principal balances
of loans outstanding using the "simple-interest" method. Loan
origination fees and certain direct origination costs are deferred and
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
amortized, generally over the contractual life of the related loans
using a level yield method. Interest is not accrued on loans for which
circumstances indicate collection is questionable.
(f) Provision for Possible Loan Losses
The provision for possible loan losses charged to operating expenses is
determined based on Management's evaluation of the loan portfolios and
the adequacy of the allowance for possible loan losses under current
economic conditions and such other factors which, in Management's
judgment, deserve current recognition.
(g) Lease Financing
The Corporation leases equipment to customers on both a direct and
leveraged lease basis. The net investment in financing leases includes
the aggregate amount of lease payments to be received and the estimated
residual values of the equipment, less unearned income and non-recourse
debt pertaining to leveraged leases. Income from lease financing is
recognized over the lives of the leases on an approximate level rate of
return on the unrecovered investment. Residual values of leased assets
are reviewed on an annual basis for reasonableness. Declines in
residual values judged to be other than temporary are recognized in the
period such determinations are made.
(h) Federal Income Taxes
The Corporation follows the asset and liability method of accounting
for income taxes. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect of a change in tax rates is
recognized in income in the period of the enactment date.
(i) Value Ascribed To Acquired Intangibles
The value ascribed to acquired intangibles, including core deposit
premiums, results from the excess of cost over fair value of net assets
acquired in acquisitions of financial institutions. Such values are
being amortized over periods ranging from 10 to 25 years, which
represents the estimated remaining lives of the long term interest
bearing assets acquired. Amortization is generally computed on an
accelerated basis based on the expected reduction in the carrying value
of such acquired assets. If no significant amount of long term interest
bearing assets is acquired, such value is amortized over the estimated
life of the acquired deposit base, with amortization periods ranging
from 10 to 15 years.
(j) Trust Department Assets and Income
Property held by the Corporation in a fiduciary or other capacity for
trust customers is not included in the accompanying consolidated
financial statements, since such items are not assets of the
Corporation. Trust income is reported generally on a cash basis which
approximates the accrual basis of accounting.
(k) Per Share Data
The per share data is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each year,
adjusted to reflect the two-for-one stock split of August 30, 1993.
(l) Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current reporting presentation.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
2. ACQUISITIONS
Great Northern Financial Corporation, a savings and loan holding company
located in Barberton, Ohio, was acquired on April 22, 1994 in exchange for
approximately 1,882,440 shares of the Corporation's common stock. The
transaction was accounted for as a pooling of interests. The accompanying
consolidated financial statements for all periods presented have been restated
to account for the acquisition.
<TABLE>
Details of the results of operations of the previously separate
corporations for the periods prior to combination are as follows:
<CAPTION>
GREAT
NORTHERN
FIRSTMERIT FINANCIAL
CORPORATION CORPORATION COMBINED
----------- ----------- --------
<S> <C> <C> <C>
For the Three Months Ended March 31, 1994
(unaudited):
Interest income...................................... $ 65,955 6,531 72,486
Net interest income.................................. $ 45,006 2,695 47,701
Net income........................................... $ 14,073 812 14,885
========== ========== =========
For the Year Ended December 31, 1993:
Interest income...................................... $ 277,720 26,869 304,589
Net interest income.................................. $ 184,489 10,313 194,802
Net income........................................... $ 55,205 355 55,560
========== ========== =========
For the Year Ended December 31, 1992:
Interest income...................................... $ 294,884 28,713 323,597
Net interest income.................................. $ 179,979 9,507 189,486
Net income........................................... $ 50,700 2,573 53,273
========== ========== =========
</TABLE>
On August 10, 1994 FirstMerit Corporation entered into an Agreement of
Affiliation and Plan of Merger with The CIVISTA Corporation, a savings and loan
holding company headquartered in Canton, Ohio ("CIVISTA"). The agreement
provided that all outstanding shares and options of CIVISTA would be exchanged
for approximately 6,513,119 shares of the Corporation's common stock.
<TABLE>
On January 31, 1995, the Corporation completed the acquisition of CIVISTA
in a transaction that has been accounted for as a pooling of interests. Pro
forma combined unaudited operating results for the two companies for the three
years ended December 31, 1994 are summarized below:
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Interest income..................................... $371,018 361,208 385,088
Net interest income................................. $230,837 226,059 217,683
Net income.......................................... $ 71,349 68,632 62,830
Net income per share................................ $ 2.13 2.07 1.90
</TABLE>
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
3. INVESTMENT SECURITIES
<TABLE>
Investment securities are composed of:
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Held to maturity:
U.S. Treasury securities and
U.S. Government agency
obligations.................. $ 462,315 41 17,174 445,182 462,315
Obligations of state and
political subdivisions....... 129,280 1,489 662 130,107 129,280
Mortgage-backed securities...... 97,135 607 2,860 94,882 97,135
Other securities................ 36,482 37 650 35,869 36,482
---------- ---------- ---------- --------- ---------
725,212 2,174 21,346 706,040 725,212
---------- ---------- ---------- --------- ---------
Available for sale:
U.S. Treasury securities and
U.S. Government agency
obligations.................. 509,938 55 28,329 481,664 481,664
Obligations of state and
political subdivisions....... -- -- -- -- --
Mortgage-backed securities...... 120,569 12 5,074 115,507 115,507
Other securities................ 57,494 1 2,370 55,125 55,125
---------- ---------- ---------- --------- ---------
688,001 68 35,773 652,296 652,296
---------- ---------- ---------- --------- ---------
$1,413,213 2,242 57,119 1,358,336 1,377,508
========= ========= ========= ======== ========
December 31, 1993
U.S. Treasury securities and
U.S. Government agency
obligations.................. 782,971 7,424 2,197 788,198 782,971
Obligations of state and
political subdivisions....... 147,673 2,768 250 150,191 147,673
Mortgage-backed securities...... 336,963 7,333 632 343,664 336,963
Other securities................ 72,606 1,542 109 74,039 72,606
---------- ---------- ---------- --------- ---------
$1,340,213 19,067 3,188 1,356,092 1,340,213
========= ========= ========= ======== ========
</TABLE>
The amortized cost and market value of investment securities including
mortgage-backed securities at December 31, 1994, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities based
on the issuers' rights to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
--------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Due in one year or less........................ $ 68,641 68,326 220,159 219,024
Due after one year through five years.......... 149,604 143,962 287,764 278,279
Due after five years through ten years......... 28,360 27,260 78,994 76,087
Due after ten years............................ 441,396 412,748 138,295 132,650
--------- ------- --------- -------
$688,001 652,296 725,212 706,040
========= ======= ========= =======
</TABLE>
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Proceeds from sales of investment securities during the years ended
December 31, 1994 and 1993 were $49,257 and $28,072, respectively. Gross gains
of $96 and $109 and gross losses of $172 and $80 were realized on these sales,
respectively.
The carrying value of investment securities pledged to secure trust and
public deposits and for purposes required or permitted by law amounted to
$883,320 and $614,533 at December 31, 1994 and 1993, respectively.
4. LOANS
<TABLE>
Loans consist of the following:
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
---------- ---------
<S> <C> <C>
Commercial, financial and agricultural..................... $ 467,428 430,118
Loans to individuals, net of unearned income of $2,616 and
$590, respectively....................................... 776,757 608,615
Real estate................................................ 1,777,082 1,535,801
Lease financing............................................ 158,659 56,682
---------- ---------
$3,179,926 2,631,216
========= =========
</TABLE>
At December 31, 1994 and 1993, the Corporation serviced loans for others
aggregating $433,903 and $396,027, respectively.
The Corporation grants loans principally to customers located within the
state of Ohio.
<TABLE>
The Corporation makes loans to officers and directors on substantially the
same terms and conditions as transactions with other parties. An analysis of
loan activity with related parties for the year ended December 31, 1994 is
summarized as follows:
<S> <C>
Aggregate amount at beginning of year........................... $42,570
Additions (deductions):
New loans.................................................. 62,203
Repayments................................................. (43,771)
Changes in directors and their affiliations................ (15,001)
-------
Aggregate amount at end of year................................. $46,001
=======
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
Transactions in the allowance for possible loan losses are summarized as
follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Balance at beginning of year................................... $32,338 29,695 25,262
Additions (deductions):
Provision for possible loan losses........................ 4,461 7,239 17,657
Loans charged off......................................... (7,566) (8,595) (17,363)
Recoveries on loans previously charged off................ 3,875 3,999 4,139
------- ------ -------
Balance at end of year......................................... $33,108 32,338 29,695
======= ====== =======
</TABLE>
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
6. RESTRICTIONS ON CASH AND DIVIDENDS
The average balance on deposit with the Federal Reserve Bank to satisfy
reserve requirements amounted to $16,943 during 1994. The level of this balance
is based upon amounts and types of customers' deposits held by the banking
subsidiaries of the Corporation. In addition, deposits are maintained with other
banks at levels determined by Management based upon the volumes of activity and
prevailing interest rates to compensate for check-clearing, safekeeping,
collection and other bank services performed by these banks. At December 31,
1994, cash and due from banks included $20,079 deposited with the Federal
Reserve Bank and other banks for these reasons.
Dividends paid by the subsidiaries are the principal source of funds to
enable the payment of dividends by the Corporation to its shareholders. These
payments by the subsidiaries in 1995 are restricted by the regulatory agencies
principally to the total of 1995 net income plus $25,048, representing the
undistributed net income of the past two calendar years. Regulatory approval
must be obtained for the payment of dividends of any greater amount.
7. PREMISES AND EQUIPMENT
<TABLE>
The components of premises and equipment are as follows:
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------- USEFUL
1994 1993 LIVES
-------- ------- ----------
<S> <C> <C> <C>
Land........................................................ $ 10,760 10,487 --
Buildings................................................... 74,615 72,142 10-50 yrs
Equipment................................................... 62,184 57,929 3-50 yrs
Leasehold improvements...................................... 11,303 10,903 1-40 yrs
-------- -------
158,862 151,461
Less accumulated depreciation and amortization.............. 81,543 80,190
-------- -------
$ 77,319 71,271
======== =======
Amounts included in other expenses for depreciation and amortization
aggregated $7,543, $6,723 and $7,050 for the years ended December 31, 1994, 1993
and 1992, respectively.
</TABLE>
<TABLE>
At December 31, 1994, the Corporation was obligated for rental commitments
under noncancellable operating leases on branch offices and equipment as
follows:
<CAPTION>
YEARS
ENDING
DECEMBER LEASE
31, COMMITMENTS
- ---------- -----------
<S> <C>
1995 $ 5,891
1996 4,892
1997 4,573
1998 4,131
1999 3,795
2000-2013 16,964
-----------
$40,246
============
Rentals paid under noncancellable operating leases amounted to $6,163,
$4,823 and $3,824 in 1994, 1993 and 1992, respectively.
</TABLE>
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
8. CERTIFICATES AND OTHER TIME DEPOSITS
The aggregate amount of certificates and other time deposits of $100 and
over at December 31, 1994 and 1993 was $209,330 and $132,387, respectively.
Interest expense on these certificates and deposits amounted to $8,541 in 1994,
$5,504 in 1993, and $6,645 in 1992.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
At December 31, 1994 and 1993, securities sold under agreements to
repurchase totaled $467,393 and $185,571, respectively. The average balance of
securities sold under agreements to repurchase and other borrowings for the
years ended December 31, 1994 and 1993, amounted to $358,831 and $187,705,
respectively. In 1994 the weighted average annual interest rate amounted to
4.64%, compared to 3.67% in 1993. The maximum amount of these borrowings at any
month end amounted to $595,024 in 1994 and $215,768 in 1993.
At December 31, 1994, the Corporation had $135,429 of Federal Home Loan
Bank advances of which: $100,116 have maturities within one year with interest
rates of 5.90% to 8.75%; $28,850 with maturities over one year to five years
with interest rates of 4.65% to 8.40%; and $6,463 over five years with interest
rates of 4.75% to 8.05%.
10. FEDERAL INCOME TAXES
<TABLE>
Federal income taxes are comprised of the following:
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Taxes currently payable......................................... $14,851 26,665 27,577
Deferred expense (benefit)...................................... 11,209 106 (3,860)
Adjustment to deferred taxes as a result of the 1994 rate
increase...................................................... -- (215) --
------- ------ ------
$26,060 26,556 23,717
======= ====== ======
</TABLE>
<TABLE>
The effective federal income tax rate differs from the statutory federal
income tax rate as shown below:
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................................ 35% 35% 34%
Decrease (increase) in rate due to:
Interest income on tax-exempt securities and tax-free loans, net.... 4 4 5
Exercise of options at acquisition.................................. 3 -- --
Thrift loss reserve recapture....................................... (4) -- --
Reduction to excess tax reserves.................................... 3 -- --
Other............................................................... (1) (1) (2)
---- ---- ----
Effective tax rate.................................................... 30% 32% 31%
==== ==== ====
</TABLE>
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
For 1994, 1993 and 1992 the deferred federal income tax provision (benefit)
results from temporary differences in the recognition of income and expense for
federal income tax and financial reporting purposes. The sources and tax effects
of these temporary differences are presented below:
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- ----- ------
<S> <C> <C> <C>
Loan loss provision..................................... $ (254) (672) (1,474)
Deferred loan fees, net................................. 261 (88) (504)
Leasing................................................. 9,638 1,172 136
Pension expense......................................... 491 686 (635)
Postretirement benefits................................. (755) (834) (20)
Other, net.............................................. 1,828 (158) (1,363)
------- ----- ------
$11,209 106 (3,860)
======= ===== ======
</TABLE>
<TABLE>
Principal components of the Corporation's net deferred tax asset are
summarized as follows:
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Excess of book loan provision over tax loan provision..................... $ 9,963 9,709
Excess of tax depreciation over book depreciation......................... (2,931) (3,073)
Leasing book basis income over tax basis.................................. (12,864) (3,226)
Deferred loan fees tax basis income over book basis....................... 2,048 2,309
Postretirement book basis expense over tax basis.......................... 1,609 854
Security portfolio tax basis over book basis.............................. 12,167 --
Other..................................................................... (2,622) (161)
------- ------
$ 7,370 6,412
======= ======
</TABLE>
11. BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially
all of its employees. In general, benefits are based on years of service and the
employee's compensation. The Corporation's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
reporting purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
A supplemental non-qualified, non-funded pension plan for certain officers
is also maintained and is being provided for by charges to earnings sufficient
to meet the projected benefit obligation. The pension cost for this plan is
based on substantially the same actuarial methods and economic assumptions as
those used for the defined benefit pension plan.
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Corporation's consolidated financial statements:
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations: Accumulated
benefit obligation, including vested benefits of $40,530,
$42,021 and $35,116, respectively........................ ($43,229) (45,459) (36,822)
======== ======= =======
Projected benefit obligation............................... ($57,853) (61,840) (53,879)
Plan assets at fair value, primarily U.S. government
obligations, corporate bonds and investments in equity
funds.................................................... 62,440 63,419 55,683
-------- ------- -------
Plan assets in excess of projected benefit obligation...... 4,587 1,579 1,804
Unrecognized net gains..................................... (5,859) (2,428) (3,150)
Unrecognized prior service cost............................ 4,928 3,326 1,768
Remaining unrecognized net asset being amortized over
employees' average remaining service life................ (1,061) (2,172) (2,833)
-------- ------- -------
Prepaid (accrued) pension cost............................. $ 2,595 305 (2,411)
======== ======= =======
Expected long-term rate of return on assets................ 9.00% 9.00% 8.50%
Weighted-average discount rate............................. 8.25% 7.50% 8.50%
Rate of increase in future compensation levels............. 5.00% 5.00% 6.50%
======== ======= =======
</TABLE>
<TABLE>
Net pension cost consists of the following components:
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost.................................................... $3,164 2,724 2,353
Interest cost on projected benefit obligation................... 4,473 4,211 4,077
Actual return on plan assets.................................... (849) (6,805) (4,392)
Net total of other components................................... (4,126) 2,185 (36)
------ ------ ------
Net periodic pension cost....................................... $2,662 2,315 2,002
====== ====== ======
</TABLE>
The Corporation maintains a savings plan under Section 401(k) of the
Internal Revenue Code, covering substantially all full-time employees after one
year of continuous employment. Under the plan, employee contributions are
partially matched by the Corporation. Such matching becomes vested when the
employee reaches three years of credited service. Total savings plan expense was
$1,874, $1,740 and $1,945 for 1994, 1993 and 1992, respectively.
12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE PLAN
The Corporation has a benefit plan which presently provides postretirement
medical and life insurance for retired employees. Effective January 1, 1993 the
plan was changed to limit the Corporation's medical contribution to 200% of the
1993 level for employees who retire after January 1, 1993. The Corporation
reserves the right to terminate or amend the plan at any time.
On January 1, 1993, the Corporation implemented Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the cost of
postretirement benefits expected to be provided to current and future retirees
be
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
accrued over those employees' service periods. In addition to recognizing the
cost of benefits for the current period, SFAS No. 106 requires recognition of
the cost of benefits earned in prior service periods (the transition
obligation). Prior to 1993, postretirement benefits were accounted for on a cash
basis. As of January 1, 1993, the Corporation's accumulated postretirement
benefit obligation (also its transition obligation) totalled approximately $19
million. The Corporation, as permitted by SFAS No. 106, has elected to amortize
the transition obligation by charges to income over a twenty year period on a
straight line basis.
<TABLE>
The following table sets forth the plan's status and amounts recognized in
the Corporation's consolidated financial statements.
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................... $(13,740) (13,484)
Fully eligible actives..................................... (4,320) (3,275)
Other actives.............................................. (6,165) (5,778)
-------- --------
Total accumulated postretirement benefit obligation.......... (24,225) (22,537)
Unrecognized prior net loss.................................. 2,553 2,473
Unrecognized prior service costs............................. -- --
Unrecognized transition obligation........................... 17,106 18,057
-------- --------
Accrued postretirement benefit cost.......................... $ (4,566) (2,007)
======== ========
</TABLE>
<TABLE>
Net postretirement benefit cost includes:
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1994 1993
------ -----
<S> <C> <C>
Service cost...................................................... $ 742 494
Interest cost..................................................... 1,829 1,573
Actual return on plan assets...................................... -- --
Amortization of transition obligation............................. 950 950
Net of other amortization and deferrals........................... 133 --
------ -----
Net periodic postretirement cost.................................. $3,654 3,017
====== =====
</TABLE>
<TABLE>
The following actuarial assumptions affect the determination of these
amounts:
<CAPTION>
PLAN YEAR JANUARY 1,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Expected long-term rate of return on assets.............. N/A N/A
Weighted-average discount rate........................... 8.25% 7.50%
Medical trend rates:
Pre-65................................................. 13.8%-6.0% 14.3%-6.0%
Post-65................................................ 13.0%-6.1% 13.5%-6.1%
</TABLE>
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
Shown below is the impact of a 1% increase in the medical trend rates
(i.e., pre-65, 14.8% for 1994 grading down to 7.0% in 2002; post-65 grading down
to 7.1% in 2027). This information is required disclosure under SFAS No. 106.
<CAPTION>
CURRENT TREND %
TREND +1% CHANGE
------- ------ ------
<S> <C> <C> <C>
Aggregate of the service and interest components of net
periodic postretirement health care benefit cost............. $2,252 2,354 +4.5%
Accumulated postretirement benefit obligation for health care
benefits..................................................... $21,885 23,286 +6.4%
</TABLE>
13. STOCK OPTIONS
The 1992 Stock Option Program provides incentive and non-qualified options
to certain key employees for up to 1,000,000 common shares of the Corporation.
In addition, the 1992 Directors Stock Option Program provides for the granting
of non-qualified stock options to certain non-employee directors of the
Corporation for which 100,000 common shares of the Corporation have been
reserved. Options under these 1992 Programs are not exercisable for at least six
months from date of grant.
Options continue to be outstanding under the 1982 Incentive Stock Options
Plan as amended in 1986, and these options are all fully exercisable.
Options under these plans are granted at 100% of the fair market value.
Options granted as incentive stock options must be exercised within ten years;
options granted as non-qualified stock options shall have terms established by a
committee of the Board. Options are cancellable within defined periods of time
based upon the reason for termination of employment.
<TABLE>
A summary of stock option activity for the years ended December 31, 1994,
1993 and 1992 follows:
<CAPTION>
SHARES
----------------------
AVAILABLE OUT- RANGE OF OPTION
FOR GRANT STANDING PRICE PER SHARE
--------- -------- ---------------
<S> <C> <C> <C>
Balance December 31, 1991............................. 79,150 301,220 $8.59 - 16.54
Add'l shares reserved............................... 1,100,000 --
Cancelled........................................... -- (5,480 ) 10.82 - 16.54
Exercised........................................... -- (78,060 ) 8.59 - 19.13
Granted............................................. (88,700) 88,700 18.50 - 19.13
--------- -------- ---------------
Balance December 31, 1992............................. 1,090,450 306,380 8.59 - 19.13
Cancelled........................................... -- (1,400 )
Exercised........................................... -- (53,600 ) 8.59 - 24.13
Granted............................................. (80,080) 80,080 24.13 - 24.19
--------- -------- ---------------
Balance December 31, 1993............................. 1,010,370 331,460 10.82 - 24.19
Cancelled........................................... -- --
Exercised........................................... -- (34,800 ) 10.82 - 24.13
Granted............................................. (73,590) 73,590 23.25 - 23.50
--------- -------- ---------------
Balance December 31, 1994............................. 936,780 370,250 $10.82 - 24.19
======== ======= ===============
The Employee Stock Purchase Plan provides full-time employees of the
Corporation the opportunity to acquire common shares on a payroll deduction
basis. Of the 200,000 shares available under the Plan, there were 12,762 and
10,946 shares issued in 1994 and 1993, respectively.
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
14. PARENT COMPANY
<TABLE>
Condensed financial information of FirstMerit Corporation (Parent Company
only) is as follows:
<CAPTION>
DECEMBER 31,
--------------------
CONDENSED BALANCE SHEETS 1994 1993
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks................................................. $ 3,795 10,756
Investment securities................................................... 840 1,390
Loans to subsidiaries................................................... 56,063 50,566
Investment in subsidiaries, at equity in underlying value of their net
assets................................................................ 361,897 353,930
Goodwill................................................................ 687 974
Other assets............................................................ 13,884 5,117
-------- -------
$437,166 422,733
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities........................................... $ 5,628 5,573
Shareholders' equity.................................................... 431,538 417,160
-------- -------
$437,166 422,733
======== =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
CONDENSED STATEMENTS OF INCOME 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries............................ $42,400 56,264 51,307
Other income................................................ 20,287 17,673 13,877
------- ------- -------
62,687 73,937 65,184
Interest and other expenses................................... 26,561 23,577 19,364
------- ------- -------
Income before federal income tax benefit and equity in
undistributed income of subsidiaries........................ 36,126 50,360 45,820
Federal income tax benefit.................................... (4,001) (1,867) (1,773)
------- ------- -------
40,127 52,227 47,593
Equity in undistributed income of subsidiaries................ 20,174 3,333 5,680
------- ------- -------
Net income.................................................... $60,301 55,560 53,273
======= ======= =======
</TABLE>
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income.................................................... $60,301 55,560 53,273
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed income of subsidiaries.............. (20,174) (3,333) (5,680)
Other....................................................... (8,417) 1,122 3,415
------- ------- -------
Net cash provided by operating activities..................... 31,710 53,349 51,008
------- ------- -------
Investing activities:
Proceeds from maturities of investment securities............. 544 428 --
Loans to subsidiaries......................................... (5,497) (22,352) (29,214)
Payments for investments in and advances to subsidiaries...... (11,000) -- --
Purchases of investment securities............................ -- -- (568)
------- ------- -------
Net cash used by investing activities......................... (15,953) (21,924) (29,782)
------- ------- -------
Financing activities:
Cash dividends................................................ (26,489) (23,486) (21,449)
Proceeds from exercise of stock options....................... 3,771 1,211 819
------- ------- -------
Net cash used by financing activities......................... (22,718) (22,275) (20,630)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... (6,961) 9,150 596
Cash and cash eqivalents at beginning of year................. 10,756 1,606 1,010
------- ------- -------
Cash and cash equivalents at end of year...................... $ 3,795 10,756 1,606
======= ======= =======
</TABLE>
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosures of fair value
information about certain financial instruments, whether or not recognized in
the consolidated balance sheets. Instruments for which quoted market prices are
not available are valued based on estimates using present value or other
valuation techniques whose results are significantly affected by the assumptions
used, including discount rates and future cash flows. Accordingly, the values so
derived, in many cases, may not be indicative of amounts that could be realized
in immediate settlement of the instrument. Also, certain financial instruments
and all nonfinancial instruments are excluded from these disclosure
requirements. For these and other reasons, the aggregate fair value amounts
presented below are not intended to represent the underlying value of the
Corporation.
The following methods and assumptions were used to estimate the fair values
of each class of financial instrument presented:
Investment securities -- Fair values are based on quoted market
prices, or for certain fixed maturity securities not actively traded
estimated values are obtained from independent pricing services.
Federal funds sold -- The carrying amount is considered a reasonable
estimate of fair value.
Net loans -- Fair value for loans with interest rates that fluctuate
as current rates change are generally valued at carrying amounts with an
appropriate discount for any credit risk. Fair values of other types of
loans are estimated by discounting the future cash flows using the current
rates for which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Cash and due from banks -- The carrying amount is considered a
reasonable estimate of fair value.
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Accrued interest receivable -- The carrying amount is considered a
reasonable estimate of fair value.
Deposits -- The carrying amount is considered a reasonable estimate of
fair value for demand and savings deposits and other variable rate deposit
accounts. The fair values for fixed maturity certificates of deposit and
other time deposits are estimated using the rates currently offered for
deposits of similar remaining maturities.
Securities sold under agreements to repurchase and other
borrowings -- Fair values are estimated using rates currently available to
the Corporation for similar types of borrowing transactions.
Accrued interest payable -- The carrying amount is considered a
reasonable estimate of fair value.
Commitments to extend credit -- The fair value of commitments to
extend credit is estimated using the fees currently charged to enter into
similar arrangements, taking into account the remaining terms of the
agreements, the creditworthiness of the counterparties, and the difference,
if any, between current interest rates and the committed rates.
Standby letters of credit and financial guarantees written -- Fair
values are based on fees currently charged for similar agreements or on the
estimated cost to terminate or otherwise settle the obligations.
Loans sold with recourse -- Fair value is estimated based on the
present value of the estimated future liability in the event of default.
<TABLE>
The estimated fair values of the Corporation's financial instruments based
on the assumptions described above are as follows:
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1993
----------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities....................... $1,377,508 1,358,336 1,340,213 1,356,092
Federal funds sold.......................... 3,851 3,851 68,050 68,050
Net loans................................... 3,146,818 3,054,214 2,598,878 2,626,164
Cash and due from banks..................... 222,527 222,527 225,226 225,226
Accrued interest receivable................. 33,436 33,436 26,766 26,766
Financial liabilities:
Deposits.................................... 3,862,826 3,827,079 3,745,612 3,761,654
Securities sold under agreements to
repurchase and other borrowings.......... 602,822 605,418 185,571 187,046
Accrued interest payable.................... 10,157 10,157 5,830 5,830
Unrecognized financial instruments:
Commitments to extend credit................ -- -- -- --
Standby letters of credit and financial
guarantees written....................... -- -- -- --
Loans sold with recourse.................... -- -- -- --
</TABLE>
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit, financial guarantees, and loans sold with recourse.
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
These instruments involve, to varying degrees, elements recognized in the
consolidated balance sheets. The contract or notional amount of these
instruments reflect the extent of involvement the Corporation has in particular
classes of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The Corporation uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
<TABLE>
Unless noted otherwise, the Corporation does not require collateral or
other security to support financial instruments with credit risk. The following
table sets forth financial instruments whose contract amounts represent credit
risk:
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Commitments to extend credit.................................. $908,805 802,461
======== =======
Standby letters of credit and financial guarantees written.... $ 52,357 51,784
======== =======
Loans sold with recourse...................................... $ 2,016 2,434
======== =======
</TABLE>
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally are extended at the then prevailing interest rates, have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Corporation upon extension of credit is based on Management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties. Standby letters of credit and financial guarantees written are
conditional commitments issued by the Corporation to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond
financing and similar transactions. Except for short term guarantees of $20,842
and $22,635 at December 31, 1994 and 1993, respectively, the remaining
guarantees extend in varying amounts through 2008. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Collateral held varies, but may include marketable
securities, equipment and real estate. In recourse arrangements, the Corporation
accepts 100% recourse. By accepting 100% recourse, the Corporation is assuming
the entire risk of loss due to borrower default. The Corporation's exposure to
credit loss, if the borrower completely failed to perform and if the collateral
or other forms of credit enhancement all prove to be of no value, is represented
by the notional amount less any allowance for possible loan losses. The
Corporation uses the same credit policies originating loans which will be sold
with recourse as it does for any other type of loan.
17. CONTINGENCIES
The nature of the Corporation's business results in a certain amount of
litigation. Accordingly, FirstMerit Corporation and its subsidiaries are subject
to various pending and threatened lawsuits in which claims for monetary damages
are asserted. Management, after consultation with legal counsel, is of the
opinion that the ultimate liability of such pending matters would not have a
material effect on the Corporation's financial condition or results of
operations.
During 1991, a law suit was filed in federal court against First National
Bank of Ohio ("Bank"), a subsidiary of the Parent Company, alleging conversion
and negligence in the deposit of funds. The suit sought
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
actual damages against the Bank plus punitive damages, interest, costs,
attorney's fees and other relief. Law suits brought in state court by other
claimants based on the same deposits have been stayed. Management, after
consultation with legal counsel, believes that the possibility of a multiple
recovery by both the federal court and state court plaintiffs is unlikely and
the maximum exposure for damages approximates $7.3 million.
During 1993, the federal court granted the Bank's motion for summary
judgement. As a result, that suit was dismissed. The plaintiff in that suit
subsequently filed a notice of appeal. The Bank is vigorously seeking to have
the favorable federal judgement affirmed on appeal. The Corporation continues to
believe the Bank has meritorious defenses to all claims.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Quarterly financial and per share data for the years ended December 31,
1994 and 1993 are summarized as follows:
<CAPTION>
QUARTERS
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------ ------ ------
IN THOUSANDS (EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total interest income............1994 $72,486 75,641 81,541 87,141
==== ======= ====== ====== ======
1993 $77,019 77,159 75,415 74,996
==== ======= ====== ====== ======
Net interest income..............1994 $47,701 49,600 51,202 52,429
==== ======= ====== ====== ======
1993 $48,026 49,327 48,323 49,126
==== ======= ====== ====== ======
Provision for possible loan
losses.........................1994 $ 1,323 844 1,158 1,136
==== ======= ====== ====== ======
1993 $ 1,965 1,914 1,653 1,707
==== ======= ====== ====== ======
Income before federal income
taxes..........................1994 $21,289 21,341 21,316 22,415
==== ======= ====== ====== ======
1993 $20,014 21,560 22,339 18,203
==== ======= ====== ====== ======
Net income.......................1994 $14,885 14,987 15,053 15,376
==== ======= ====== ====== ======
1993 $13,986 14,954 14,989 11,631
==== ======= ====== ====== ======
Net income per share.............1994 $ .55 .55 .55 .57
==== ======= ====== ====== ======
1993 $ .52 .55 .55 .43
==== ======= ====== ====== ======
</TABLE>
19. SHAREHOLDER RIGHTS PLAN
The Corporation has in effect a shareholder rights plan ("Plan"). The Plan
provides that each share of Common Stock has one right attached. Under the Plan,
the Rights would be distributed after either of the following events: (1) a
person acquires 15% or more of the Common Stock of the Corporation, except if
pursuant to a tender offer on terms determined by a majority of the "Continuing
Directors" to be fair; or (2) the commencement of a tender offer that would
result in a change in the ownership of 15% or more of the Common Stock. After
such an event, each Right would entitle the holder to purchase shares of Series
A Preferred Stock of the Corporation. The Corporation may redeem the Rights for
$0.01 per Right.
46
<PAGE> 48
MANAGEMENT'S REPORT
The management of FirstMerit Corporation is responsible for the preparation
and accuracy of the financial information presented in this annual report. These
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, based on the best estimates and judgement of
management.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, that transactions are executed
in accordance with the Corporation's authorization and policies, and that
transactions are properly recorded so as to permit preparation of financial
statements that fairly present the financial position and results of operations
in conformity with generally accepted accounting principles. These systems and
controls are reviewed by our internal auditors and independent auditors.
The Audit Committee of the Board of Directors is composed of only outside
directors and has the responsibility for the recommendation of the independent
auditors for the Corporation. The Audit Committee meets regularly with
management, internal auditors and our independent auditors to review accounting,
auditing and financial matters. The independent auditors and the internal
auditors have free access to the Audit Committee.
/s/ HOWARD L. FLOOD /s/ GARY J. ELEK
HOWARD L. FLOOD GARY J. ELEK
President and Chief Senior Vice President
Executive Officer and Treasurer
47
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
FirstMerit Corporation:
We have audited the accompanying consolidated balance sheets of FirstMerit
Corporation (formerly First Bancorporation of Ohio) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FirstMerit
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
January 17, 1995 (except for Note 2, as to which the date is January 31, 1995)
48
<PAGE> 50
FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS, FULLY-TAX EQUIVALENT INTEREST RATES AND
INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------- ------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- --------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities:
U.S. Treasury securities
and U.S. Government
agency obligations
(taxable)............. $1,147,516 68,122 5.94% 931,837 60,301 6.47% 835,300 63,024 7.55%
Obligations of states
and political
subdivisions (tax-
exempt)............... 145,199 11,011 7.58 140,550 11,694 8.32 140,682 12,337 8.77
Other securities........ 89,669 5,838 6.51 242,802 14,100 5.81 278,061 19,015 6.84
---------- -------- --------- -------- --------- --------
Total investment
securities.......... 1,382,384 84,971 6.15 1,315,189 86,095 6.55 1,254,043 94,376 7.53
Federal funds sold........ 44,300 1,796 4.05 87,414 2,692 3.08 96,803 3,395 3.51
Loans..................... 2,845,302 234,632 8.25 2,597,174 221,047 8.51 2,491,314 231,468 9.29
Less allowance for
possible loan losses.... 33,253 -- -- 31,443 -- -- 27,446 -- --
---------- -------- --------- -------- --------- --------
Net loans............. 2,812,049 234,632 8.34 2,565,731 221,047 8.62 2,463,868 231,468 9.39
---------- -------- --------- -------- --------- --------
Total earning
assets.............. 4,238,733 321,399 7.58 3,968,334 309,834 7.81 3,814,714 329,239 8.63
-------- -------- --------
Cash and due from banks... 189,826 218,352 182,202
Other assets.............. 152,568 156,519 155,215
---------- --------- ---------
Total assets.......... $4,581,127 4,343,205 4,152,131
========== ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand--
non-interest
bearing............. $ 666,469 -- -- 642,830 -- -- 538,722 -- --
Demand--
interest bearing...... 328,584 7,242 2.20 309,172 7,371 2.38 302,438 8,861 2.93
Savings................. 1,396,228 34,716 2.49 1,369,469 37,650 2.75 1,199,591 39,874 3.32
Certificates and other
time deposits......... 1,366,724 57,278 4.19 1,388,920 57,884 4.17 1,512,571 77,972 5.15
---------- -------- --------- -------- --------- --------
Total deposits........ 3,758,005 99,236 2.64 3,710,391 102,905 2.77 3,553,322 126,707 3.57
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings.... 358,831 16,641 4.64 187,705 6,882 3.67 183,627 7,404 4.03
---------- -------- --------- -------- --------- --------
Total interest bearing
liabilities......... 3,450,367 115,877 3.36 3,225,266 109,787 3.37 3,198,227 134,111 4.19
-------- -------- --------
Other liabilities......... 36,467 42,256 47,544
Shareholders' equity...... 427,824 402,853 367,638
---------- --------- ---------
Total liability and
shareholders'
equity.............. $4,581,127 4,343,205 4,152,131
========== ========= =========
Net yield on earning
assets.................. 205,522 4.85 200,047 5.04 195,128 5.12
======== ======= ======= ======= ======= =======
Interest rate spread...... 4.22 4.44 4.44
======= ======= =======
Income on tax-exempt
securities and loans.... 9,409 10,454 12,061
======== ======= =======
- ---------------
Notes:
Interest income on tax-exempt securities and loans have been adjusted to a
fully-taxable equivalent basis.
Non-accrual loans have been included in the average balances.
</TABLE>
49
<PAGE> 51
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information about the Directors of FirstMerit, see "Election of
Directors" on pages 1 through 5 of FirstMerit's Proxy Statement dated March 2,
1995 ("Proxy Statement"), which is incorporated herein by reference.
Information about the Executive Officers of FirstMerit appears in Part I of
this report.
Disclosures by FirstMerit with respect to compliance with Section 16(a)
appear on page 5 of the Proxy Statement, and are incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
See "Executive Compensation and Other Information" on pages 6 through 16 of
the Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Principal Shareholders" and "Election of Directors" at page 20, and
pages 1 through 5, respectively, of the Proxy Statement, which are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Relationships and Related Transactions" at page 16 of the
Proxy Statement, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following Financial Statements appear in Part II of this Report:
Independent Auditors' Report
Management's Report
Consolidated Balance Sheets
December 31, 1994 and 1993
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Years ended December 31, 1994, 1993 and 1992
(a)(2) Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes which appear in Part II of this report.
50
<PAGE> 52
(a)(3) Management Contracts or Compensatory Plans or Arrangements (for
remaining Exhibits, see the Exhibit Index which appears following
the Signatures section of this report).
CONTRACT, PLAN OR ARRANGEMENT REFERENCE LOCATION
- ----------------------------------- -----------------------------------
1982 Incentive Stock Option Plan of Registration Statement on Form S-8
FirstMerit Corporation No. 33-7266, Exhibit 4.2
Incentive Stock Option Agreement Registration Statement on Form S-8
relating to 1982 Incentive Stock No. 33-7266, Exhibit 4.3
Option Plan of FirstMerit
Corporation
1992 Stock Option Program of Form 10-K for fiscal year ended
FirstMerit Corporation December 31, 1991, Exhibit 10(c)
Incentive Stock Option Agreement Form 10-K for fiscal year ended
relating to 1992 Incentive Stock December 31, 1991, Exhibit 10(d)
Option Plan of FirstMerit
Corporation
Non-Qualified Stock Option Form 10-K for fiscal year ended
Agreement relating to the 1992 December 31, 1991, Exhibit 10(e)
Stock Option Program of
FirstMerit Corporation
1985 FirstMerit Corporation Stock Registration Statement on Form S-8
Plan (CV) No. 33-57557, Exhibit 10(a)
1993 FirstMerit Corporation Stock Registration Statement on Form S-8
Plan (CV) No. 33-57557, Exhibit 10(b)
Employee Stock Purchase Plan of Form 10-K for fiscal year ended
FirstMerit Corporation December 31, 1991, Exhibit 10(f)
1992 Directors Stock Option Program Form 10-K for fiscal year ended
December 31, 1991, Exhibit 10(g)
Directors Stock Option Agreement Form 10-K for fiscal year ended
relating to the 1992 Directors December 31, 1991, Exhibit 10(h)
Stock Option Program of
FirstMerit Corporation
FirstMerit Corporation Executive Form 10-K for fiscal year ended
Supplemental Retirement Plan December 31, 1991, Exhibit 10(i)
Form of FirstMerit Corporation Form 10-K for fiscal year ended
Unfunded Supplemental Benefit December 31, 1991, Exhibit 10(j)
Plan
FirstMerit Corporation Directors' Form 10-K for fiscal year ended
Deferral Fee Plan December 31, 1989, Exhibit 10(e)
Termination Agreement of Howard L. Form 10-K for fiscal year ended
Flood December 31, 1991, Exhibit 10(l)
Form of Termination Agreement with Form 10-K for fiscal year ended
certain of the executive officers December 31, 1992, Exhibit 10(m)
of FirstMerit Corporation and its
Subsidiaries
Addendum to Termination Agreement Form 10-K for fiscal year ended
of Richard L. Hardgrove December 31, 1993, Exhibit 10(r)
51
<PAGE> 53
CONTRACT, PLAN OR ARRANGEMENT REFERENCE LOCATION
- ----------------------------------- -----------------------------------
Membership Agreement of Howard L. Form 10-K for fiscal year ended
Flood with respect to the December 31, 1991, Exhibit 10(o)
FirstMerit Corporation Executive
Supplemental Retirement Plan
Membership Agreement of Scott A. Form 10-K for fiscal year ended
Lyons, Jr. with respect to the December 31, 1991, Exhibit 10(q)
FirstMerit Corporation Executive
Supplemental Retirement Plan
Supplemental Pension Agreement of Form 10-K for fiscal year ended
John R. Macso December 31, 1991, Exhibit 10(r)
First Amendment to the FirstMerit Form 10-K for fiscal year ended
Corporation Executive December 31, 1993, Exhibit 10(s)
Supplemental Retirement Plan
Second Amendment to the FirstMerit Form 10-K for fiscal year ended
Corporation Executive December 31, 1994, Exhibit 10(u)
Supplemental Retirement Plan
First Amendment to the FirstMerit Form 10-K for fiscal year ended
Corporation Unfunded Supplemental December 31, 1994, Exhibit 10(v)
Benefit Plan
FirstMerit Corporation Executive Form 10-K for fiscal year ended
Committee Life Insurance Program December 31, 1994, Exhibit 10(w)
Summary
Long Term Disability Plan Form 10-K for fiscal year ended
December 31, 1994, Exhibit 10(x)
(b) Reports on Form 8-K
On December 19, 1994, FirstMerit filed a report on Form 8-K relating to a
change in the registrant's corporate name from First Bancorporation of Ohio
to FirstMerit Corporation.
(c) Exhibits
See the Exhibit Index which appears following the Signatures section of this
report.
(d) Financial Statements
See subparagraph (a)(1) above.
52
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AKRON,
STATE OF OHIO, ON THE 28TH DAY OF FEBRUARY, 1995.
FirstMerit Corporation
By:/s/ HOWARD L. FLOOD
--------------------------------
Howard L. Flood, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on the 28th day of February, 1995 by the following
persons (including a majority of the Board of Directors of the registrant) in
the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ HOWARD L. FLOOD President and Chief Executive Officer
- --------------------------------- (Principal Executive Officer) and Director
Howard L. Flood
/s/ GARY J. ELEK Senior Vice President and Treasurer
- --------------------------------- (Principal Financial Officer and
Gary J. Elek Principal Accounting Officer)
/s/ JOHN C. BLICKLE Director
- ---------------------------------
John C. Blickle
/s/ ROBERT M. CARTER Director
- ---------------------------------
Robert M. Carter
Director
- ---------------------------------
Richard A. Chenoweth
Director
- ---------------------------------
Elizabeth A. Dalton
Director
- ---------------------------------
Richard G. Gilbert
/s/ TERRY L. HAINES Director
- ---------------------------------
Terry L. Haines
/s/ RICHARD L. HARDGROVE Director
- ---------------------------------
Richard L. Hardgrove
/s/ CLIFFORD J. ISROFF Director
- ---------------------------------
Clifford J. Isroff
/s/ PHILIP A. LLOYD, II Director
- ---------------------------------
Philip A. Lloyd, II
Director
- ---------------------------------
Robert G. Merzweiler
Director
- ---------------------------------
Stephen E. Myers
/s/ GILBERT H. NEAL Director
- ---------------------------------
Gilbert H. Neal
/s/ ROGER T. READ Director
- ---------------------------------
Roger T. Read
Director
- ---------------------------------
Justin T. Rogers, Jr.
/s/ DEL SPITZER Director
- ---------------------------------
Del Spitzer
53
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<S> <C>
(3)(a)1 Amended and Restated Articles of Incorporation, as amended, of FirstMerit
Corporation
(3)(b)2 Code of Regulations, as amended, of FirstMerit Corporation
(3)(c)3 Shareholders Rights Agreement dated October 21, 1993 between FirstMerit
Corporation and First National Bank of Ohio
(4) Description of Shares - contained in Exhibit 3(a) above
(10)(a)4 1982 Incentive Stock Option Plan of FirstMerit Corporation
(10)(b)5 Incentive Stock Option Agreement relating to 1982 Incentive Stock Option Plan of
FirstMerit Corporation
(10)(c)6 1992 Stock Option Program of FirstMerit Corporation
(10)(d)7 Incentive Stock Option Agreement relating to the 1992 Stock Option program of
FirstMerit Corporation
(10)(e)8 Non-Qualified Stock Option Agreement relating to the 1992 Stock Option Program
of FirstMerit Corporation
(10)(f)9 Employee Stock Purchase Plan of FirstMerit Corporation
(10)(g)10 1992 Directors Stock Option Program
(10)(h)11 Directors Stock Option Agreement relating to the 1992 Directors Stock Option
Program of FirstMerit Corporation
(10)(i)12 FirstMerit Corporation Executive Supplemental Retirement Plan
(10)(j)13 Form of FirstMerit Corporation Unfunded Supplemental Benefit Plan
(10)(k)14 FirstMerit Corporation Directors' Deferral Fee Plan
(10)(l)15 Termination Agreement of Howard L. Flood
(10)(m)16 Form of Termination Agreement with certain of the executive officers of
FirstMerit Corporation and its Subsidiaries
(10)(n)17 Membership Agreement of Howard L. Flood with respect to the FirstMerit
Corporation Executive Supplemental Retirement Plan
(10)(o)18 Membership Agreement of Scott A. Lyons, Jr. with respect to the FirstMerit
Corporation Executive Supplemental Retirement Plan
(10)(p)19 Supplemental Pension Agreement of John R. Macso
(10)(q)20 Addendum to Termination Agreement of Richard L. Hardgrove
(10)(r)21 First Amendment to the FirstMerit Corporation Executive Supplemental Retirement
Plan
(10)(s)22 1985 FirstMerit Corporation Stock Plan (CV)
(10)(t)23 1993 FirstMerit Corporation Stock Plan (CV)
(10)(u) Second Amendment to the FirstMerit Corporation Executive Supplemental Retirement
Plan
(10)(v) First Amendment to the FirstMerit Corporation Unfunded Supplemental Benefit Plan
(10)(w) FirstMerit Corporation Executive Committee Life Insurance Program Summary
(10)(x) Long Term Disability Plan
(21) Subsidiaries of FirstMerit Corporation
(23) Consent of Coopers & Lybrand, L.L.P.
(27) Financial Data Schedule
- ---------------
1 Incorporated by reference to Exhibit 3 of FirstMerit's Forms 8-K filed with the Commission on November 4, 1993
and December 19, 1994.
2 Incorporated by reference to Exhibit 3(a) of FirstMerit's Registration Statement on Form S-4 (No. 33-24925)
filed with the Commission on October 17, 1988.
3 Incorporated by reference to Exhibit 4 of FirstMerit's Registration Statement on Form 8-A filed with the
Commission on November 4, 1993.
4 Incorporated by reference to Exhibit 4.2 of FirstMerit's Registration Statement on Form S-8 (No. 33-7266),
filed with the Commission on July 15, 1986.
</TABLE>
54
<PAGE> 56
<TABLE>
<S> <C>
5 Incorporated by reference to Exhibit 4.3 of FirstMerit's Registration Statement on Form S-8 (No. 33-7266),
filed with the Commission on July 15, 1986.
6 Incorporated by reference to Exhibit (10)(c) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
7 Incorporated by reference to Exhibit (10)(d) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
8 Incorporated by reference to Exhibit (10)(e) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
9 Incorporated by reference to Exhibit (10)(f) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
10 Incorporated by reference to Exhibit (10)(g) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
11 Incorporated by reference to Exhibit (10)(h) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
12 Incorporated by reference to Exhibit (10)(i) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
13 Incorporated by reference to Exhibit (10)(j) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
14 Incorporated by reference to Exhibit (10)(e) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1989, filed with the Commission on March 13, 1990.
15 Incorporated by reference to Exhibit (10)(l) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
16 Incorporated by reference to Exhibit (10)(m) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1992, filed with the Commission on March 15, 1993.
17 Incorporated by reference to Exhibit (10)(o) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
18 Incorporated by reference to Exhibit (10)(q) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
19 Incorporated by reference to Exhibit (10)(r) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
20 Incorporated by reference to Exhibit (10)(r) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1993, filed with the Commission on March 17, 1994.
21 Incorporated by reference to Exhibit (10)(s) of FirstMerit's Form 10-K for the fiscal year ended December 31,
1993, filed with the Commission on March 17, 1994.
22 Incorporated by reference to Exhibit (10)(a) of FirstMerit's Form S-8 No. 33-57557, filed with the Commission
on February 1, 1995.
23 Incorporated by reference to Exhibit (10)(b) of FirstMerit's Form S-8 No. 33-57557, filed with the Commission
on February 1, 1995.
</TABLE>
55
<PAGE> 1
EXHIBIT (10)(u)
SECOND AMENDMENT TO THE
FIRSTMERIT CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
<PAGE> 2
SECOND AMENDMENT TO THE
FIRSTMERIT CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
FIRSTMERIT CORPORATION, FKA FIRST BANCORPORATION OF OHIO, (the
"Company") hereby adopts this Second Amendment to the First Bancorporation of
Ohio Executive Supplemental Retirement Plan, effective as of November 1, 1993.
R E C I T A L S:
A. The Company adopted the First Bancorporation of Ohio Executive
Supplemental Retirement Plan (the "Plan") effective as of February 13, 1987.
B. Section 9.07 of the Plan provides that the Company may amend the
Plan at any time and from time to time.
C. The Company desires to amend the Plan to provide an early
retirement incentive for certain of its employees.
IN CONSIDERATION OF THE FOREGOING, the Company hereby amends the Plan,
effective as of January 30, 1995, as follows:
1. Except as otherwise expressly provided, capitalized terms used in
this Amendment shall have the same meanings as those ascribed to them in the
Plan.
2. Section 1.01 of the Plan is amended and restated to read as
follows:
Section 1.01 This Plan shall be known as the FirstMerit Corporation
Executive Supplemental Retirement Plan (hereinafter referred to as the "Plan").
3. Section 2.12 of the Plan is amended and restated to read as
follows:
Section 2.12 The term "Employer" shall mean FirstMerit Corporation, its
successors, any subsidiary or affiliated organizations authorized by the Board
of Directors of FirstMerit Corporation or the Committee to participate in this
Plan with respect to their Members, and subject to the provisions of Article X,
any organization into which or with which the Employer may merge or consolidate
or to which all or substantially all of its assets may be transferred.
4. The following paragraphs are added to Section 4.02 of the Plan
effective as of January 30, 1995:
Notwithstanding the foregoing, for purposes of calculating a Qualifying
Member's Monthly Retirement Income under the provisions of this Section 4.02,
three (3) years shall be added to the Qualifying Member's Attained Age as of
May 1, 1995. For purposes of this paragraph, a Member shall be a "Qualifying
Member" if he satisfies all of the following:
<PAGE> 3
(v) He is not, as of his Early Retirement Date, and was not
prior to February 1, 1995, an employee of The CIVISTA
Corporation, Citizens Savings Bank of Canton, Citizens
Investment Corporation, Citizens Savings Corporation, or
The CASNET Group, Inc.; and
(w) As of May 1, 1995, he has, or will have, attained age
fifty-five (55) (determined without regard to the
adjustment to his age provided under this paragraph) and
earned at least fifteen (15) Participating Years of Service
(calculated in accordance with the provisions of the
Qualified Plan); and
(x) He has elected to retire under this Section 4.02, effective
as of May 1, 1995, and to receive his Monthly Retirement
Income under this Plan commencing as of such date; and
(y) His election to retire pursuant to the provisions of this
Amendment is received by the Committee in writing, on forms
provided by the Committee, on or after January 30, 1995 and
on or before March 15, 1995; and
(z) His termination of employment with the Employer occurs on
and after April 1, 1995 and on or before April 28, 1995.
5. Except as expressly provided in this Amendment, the remaining
terms and conditions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, FirstMerit Corporation has caused this
Second Amendment to the Plan to be duly executed and adopted this 19th day of
January, 1995. ----
FIRSTMERIT CORPORATION
Attest:/s/ Terry E. Patton By:/s/ Howard L. Flood
------------------- -------------------
Secretary Its: President & Chief
Executive Officer
-44-
- -
<PAGE> 1
EXHIBIT (10)(v)
FIRST AMENDMENT TO THE
FIRSTMERIT CORPORATION
UNFUNDED SUPPLEMENTAL BENEFIT PLAN
<PAGE> 2
FIRST AMENDMENT TO THE
FIRSTMERIT CORPORATION
UNFUNDED SUPPLEMENTAL BENEFIT PLAN
(AMENDED AS OF JANUARY 1, 1991)
FIRSTMERIT CORPORATION, FKA FIRST BANCORPORATION OF OHIO, (the
"Company") hereby adopts this First Amendment to the First Bancorporation of
Ohio Unfunded Supplemental Benefit Plan (Amended as of January 1, 1991).
R E C I T A L S:
A. The Company adopted the First Bancorporation of Ohio Unfunded
Supplemental Benefit Plan (Amended as of January 1, 1991) (the "Plan")
effective as of January 1, 1991.
B. Section 6.1 of the Plan provides that the Company may amend the
Plan at any time and from time to time.
C. The Company desires to amend the Plan to change its name.
IN CONSIDERATION OF THE FOREGOING, the Company hereby amends the Plan,
effective as of January 31, 1995, as follows:
1. Except as otherwise expressly provided, capitalized terms used in
this Amendment shall have the same meanings as those ascribed to them
in the Plan.
2. Section 1.4 of the Plan is amended and restated to read as follows:
1.4 Company. FirstMerit Corporation, its successors and assigns, any
subsidiary or affiliated corporation which has properly adopted the Pension
Plan, any subsidiary or affiliated organizations authorized by the Board to
participate in this Plan with respect to their Employees, and any organization
into which or with which the Company may merge or consolidate or to which all
or substantially all of its assets may be transferred, except where a specific
reference is made to a particular corporation.
3. Section 1.8 of the Plan is amended and restated to read as follows:
1.8 Plan. The FirstMerit Corporation Unfunded Supplemental
Benefit Plan.
4. Except as expressly provided in this Amendment, the remaining
terms and conditions of the Plan shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, FirstMerit Corporation has caused this
First Amendment to the Plan to be duly executed and adopted this 19th day of
January, 1995. ----
FIRSTMERIT CORPORATION
Attest:/s/ Terry E. Patton By:/s/ Howard L. Flood
------------------- -------------------
Secretary
Its: President & Chief
Executive Officer
-47-
<PAGE> 1
EXHIBIT (10)(w)
FIRSTMERIT CORPORATION
EXECUTIVE COMMITTEE LIFE INSURANCE PROGRAM SUMMARY
<PAGE> 2
FIRSTMERIT CORPORATION
EXECUTIVE COMMITTEE LIFE INSURANCE PROGRAM SUMMARY
<TABLE>
<CAPTION>
PLAN OVERVIEW
-------------
<S> <C>
EMPLOYER NAME: FirstMerit Corporation
ELIGIBLE EMPLOYEE GROUP: Active Members of the Executive Committee
PLAN EFFECTIVE DATE: January 1, 1995
PURPOSE OF PLAN: FirstMerit Corporation seeks to provide permanent life insurance
(Whole Life) benefits to members of the Executive Committee. The Bank
bonuses an income amount to each Executive equal to the annual policy
premium and retains no ownership rights in the policy.
The Executive is the owner of the policy and controls all policy values
and benefits. This benefit is granted in lieu of all existing Group
Term Insurance benefits provided by the Bank in excess of $50,000.
LIFE INSURANCE BENEFIT: Chief Executive Officer - $1,000,000
Chief Operating Officer - $ 750,000
Other Executive Committee Members - $ 500,000
BANK COST: The Bank pays an annual bonus to each eligible Executive equal to
his/her annual whole life premium cost based upon age and level of
benefit PLUS a bonus to assist the Executive with the impact of the
tax.
EXECUTIVE COST: The Executive reports annual taxable income equal to the TOTAL bonus
amount received.
PREMIUM PAYMENT PERIOD: The Bank will bonus the policy premium amounts to the Executives to
the later of normal retirement age or to the year in which policy
dividends are sufficient to pay all future premium costs.
</TABLE>
<PAGE> 1
EXHIBIT (10)(x)
LONG TERM DISABILITY PLAN
<PAGE> 2
FIRSTMERIT CORPORATION
LONG TERM DISABILITY PLAN
SECTION 1 - POLICY SPECIFICATIONS
1. Description of Eligible Classes
Class 1 All Full-time salaried employees
Class 2 All members of FirstMerit Executive Committee
2. Amounts of Insurance
Class 1
OPTION A 50% (benefit percentage) of basic monthly earnings not to exceed the
maximum monthly benefit, less other income benefits.
OPTION B 60% (benefit percentage) of basic monthly earnings not to exceed the
maximum monthly benefit, less other income benefits.
OPTION C 70% (benefit percentage) of basic monthly earnings not to exceed the
maximum monthly benefit, less other income benefits.
Note: This benefit is subject to reductions for earnings as provided
in the Monthly Benefit sectionof this Policy.
The maximum monthly benefit is $15,000.
Class 2
OPTION A
66 2/3% (benefit percentage) of basic monthly earnings not to exceed the
maximum monthly benefit, less other income benefits.
Note: This benefit is subject to reductions for earnings as provided
in the Monthly Benefit section of this policy.
The maximum monthly benefit is $25,000.
<PAGE> 3
SECTION 1 - POLICY SPECIFICATIONS (CONTINUED)
FOR ALL OPTIONS
The minimum monthly benefit is the greater of:
1. $100.00; or
2. 10% of the monthly benefit before deductions for other income
benefits.
Maximum Benefit Period
Class 1 & 2
<TABLE>
<CAPTION>
Age at Disability Maximum Benefit Period
----------------- ----------------------
Less than age 60 To age 65 but not
Less than 60 months
<S> <C>
60 60 months
61 48 months
62 42 months
63 36 months
64 30 months
65 24 months
66 21 months
67 18 months
68 15 months
69 and Over 12 months
</TABLE>
Elimination Period
180 days
Minimum Requirement for Active Employment: 30 hours per week
Definition of Basic Monthly Earnings
<PAGE> 4
SECTION 1 - POLICY SPECIFICATIONS (CONTINUED)
Class 1
"Basic monthly earnings" means the insured's monthly rate of earnings from the
employer in effect just prior to the date disability begins. It does not
include commissions, bonuses, overtime pay and other extra compensation.
Class 2
"Basic monthly earnings" means the insured's monthly rate of earnings from the
employer in effect just prior to the date disability begins. It includes
bonuses, but not commissions, overtime pay or other extra compensation.
Bonuses will be averaged for the lesser of:
1. the 12 month period of employment just prior to the date disability
begins; or
2. the period of employment.
WAITING PERIOD:
1. Employees in an eligible class on or before the policy effective date:
Class 1: 90 days of employment.
Class 2: None
2. Employees entering an eligible class after the policy effective date:
Class 1: 90 days of employment.
Class 2: None
The employee must be in continuous active employment in an eligible class
during the specified waiting period.
Contributions:
Class 1
Both the employer and the employees pay for the plan.
<PAGE> 5
SECTION 1 - POLICY SPECIFICATIONS (CONTINUED)
Class 2
The employer pays for the plan.
Note: Coverage for which contributions are required applies only if proper
enrollment is made and the required contributions are made.
<PAGE> 6
SECTION IV - BENEFITS (CONTINUED)
Class 1
MENTAL ILLNESS LIMITATION
Benefits for disability due to mental illness will not exceed 24 months of
monthly benefit payments unless the insured meets one of these situations.
1. The insured is in a hospital or institution at the end of the 24-month
period. The monthly benefit will be paid during the confinement.
If the insured is still disabled when he is discharged, the monthly
benefit will be paid for a recovery period of up to 90 days.
If the insured becomes reconfined during the recovery period for at
least 14 days in a row, benefits will be paid for the confinement and
another recovery period up to 90 more days.
2. The insured continues to be disabled and becomes confined:
a. after the 24-month period; and
b. for at least 14 days in a row.
The monthly benefit will be payable during the confinement.
The monthly benefit will not be payable beyond the maximum benefit period.
"Hospital" or "Institution" means facilities licensed to provide care and
treatment for the condition causing the insured's disability.
"Mental Illness" means mental, nervous or emotional diseases or disorders of
any type.
Class 2
NO MENTAL ILLNESS LIMITATIONS
Class 2
COST OF LIVING ADJUSTMENT
ELIGIBILITY
An insured will be eligible for cost of living adjustments on the first
anniversary of benefit payments and each following anniversary. But not more
than 10 adjustments may be made during the insured's benefit period.
<PAGE> 7
SECTION IV - BENEFITS (CONTINUED)
ADJUSTMENT AMOUNT
The Insured's net monthly benefit will be increased by 5%.
Each adjustment will be added to the insured's net monthly benefit and will be
paid monthly.
MAXIMUM MONTHLY BENEFIT
Cost of living adjustment increases are not subject to the maximum monthly
benefit.
NET MONTHLY BENEFIT
The net monthly benefit means the amount determined by reducing the insured's
amount of insurance by other income benefits and any reductions for earnings.
The net monthly benefit will be determined each month. For the purpose of
calculating adjustments, the net monthly benefit will include any prior cost of
living adjustments.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FIRSTMERIT CORPORATION*
<TABLE>
<CAPTION>
CORPORATION PERCENT OF OWNERSHIP
<S> <C>
First National Bank of Ohio
(national banking association) 100%
The Old Phoenix National Bank of Medina
(national banking association) 100%
EST National Bank
(national banking association) 100%
Peoples National Bank
(national banking association) 100%
Citizens National Bank
(national banking association) 100%
Bancorp Trust Company, National Association
(national trust company) 100%
Peoples Bank, N.A.
(national banking association) 100%
Life Savings Bank, FSB
(federal savings association) 100%
FirstMerit Credit Life Insurance Company
(Arizona corporation) 100%
FirstMerit Community Development Corporation
(Ohio corporation) 100%
Citizens Savings Corporation of Stark County 100%
The CASNET Group, Inc. 100%
Citizens Investment Corporation 100%
Crest Investments, Inc. 100%
</TABLE>
*At February 1, 1995
<PAGE> 1
EXHIBIT 23
The Board of Directors
FirstMerit Corporation
We consent to incorporation by reference in Registration Statement Nos.
33-7266, 33-47074, 33-47147, 33- 57076, and 33-57557 on Forms S-8, of our
report dated January 17, 1995, except for Note 2, as to which the date is
January 31, 1995, relating to the consolidated balance sheets of FirstMerit
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
three year period ended December 31, 1994, which report appears in the 1994
annual report on Form 10-K of FirstMerit Corporation.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
February 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000354869
<NAME> FIRST BANCORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 222,527
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,851
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 652,296
<INVESTMENTS-CARRYING> 725,212
<INVESTMENTS-MARKET> 706,040
<LOANS> 3,179,926
<ALLOWANCE> 33,108
<TOTAL-ASSETS> 4,924,157
<DEPOSITS> 3,862,826
<SHORT-TERM> 602,822
<LIABILITIES-OTHER> 26,971
<LONG-TERM> 0
<COMMON> 88,012
0
0
<OTHER-SE> 343,526
<TOTAL-LIABILITIES-AND-EQUITY> 4,924,157
<INTEREST-LOAN> 233,642
<INTEREST-INVEST> 81,371
<INTEREST-OTHER> 1,796
<INTEREST-TOTAL> 316,809
<INTEREST-DEPOSIT> 99,236
<INTEREST-EXPENSE> 115,877
<INTEREST-INCOME-NET> 200,932
<LOAN-LOSSES> 4,461
<SECURITIES-GAINS> (76)
<EXPENSE-OTHER> 166,986
<INCOME-PRETAX> 86,361
<INCOME-PRE-EXTRAORDINARY> 86,361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,301
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
<YIELD-ACTUAL> 4.85
<LOANS-NON> 12,899
<LOANS-PAST> 3,569
<LOANS-TROUBLED> 1,747
<LOANS-PROBLEM> 24,500
<ALLOWANCE-OPEN> 32,338
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<RECOVERIES> 3,875
<ALLOWANCE-CLOSE> 33,108
<ALLOWANCE-DOMESTIC> 33,108
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
