<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 31, 1995
FIRSTMERIT CORPORATION
(F/K/A FIRST BANCORPORATION OF OHIO)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 0-10161 34-1339938
(State or other jurisdiction of (Commission (IRS employer identification
incorporation or organization) file number) number)
III CASCADE PLAZA, 7TH FLOOR AKRON, OHIO 44308 (216) 384-8000
(Address of Principal Executive Offices) (Zip Code) (Telephone Number)
</TABLE>
Copy to:
KEVIN C. O'NEIL, ESQ.
BROUSE & MCDOWELL
500 First National Tower
Akron, Ohio 44308-1471
(216) 434-5207
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 31, 1995, FirstMerit Corporation (f/k/a First
Bancorporation of Ohio) ("FMER") completed its acquisition of The CIVISTA
Corporation ("CIVISTA") whereby CIVISTA was merged with and into FMER. The
merger was completed pursuant to the Agreement of Affiliation and Plan of
Merger between CIVISTA and FMER, dated August 10, 1994 ("Agreement"). Under
the terms of the Agreement, FMER exchanged 1.723 shares of FMER common stock
for each share of outstanding CIVISTA common stock. FMER is the surviving
entity. The transaction was structured as a tax-free exchange of the
securities and accounted for as a pooling of interests.
The terms of the merger are more fully described in the First
Bancorporation of Ohio and The CIVISTA Corporation Prospectus and Joint Proxy
Statement for the Special Meetings of Shareholders dated November 2, 1994,
included in FirstMerit's Form S-4 Registration No. 33-55491 filed September 16,
1994, and its Amendment No. 1 to Form S-4 Registration Statement filed on
October 26, 1994.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF FIRSTMERIT CORPORATION AND SUBSIDIARIES
The following are filed as exhibits to this Form 8-K/A:
Independent Auditors' Report
Supplemental Consolidated Balance Sheets Years Ended December 31, 1994
and 1993
Supplemental Consolidated Statements of Income Years Ended December
31, 1994, 1993 and 1992
Supplemental Consolidated Statements of Shareholders' Equity Years
Ended December 31, 1994, 1993 and 1992
Supplemental Consolidated Statements of Cash Flows Years Ended
December 31, 1994, 1993 and 1992
Notes to Supplemental Consolidated Financial Statements
(C) EXHIBITS
10 Agreement of Affiliation and Plan of Merger dated as of August
10, 1994, by and between First Bancorporation of Ohio and The
CIVISTA Corporation. Filed as Exhibit 10(a) to Form 8-K filed
on August 16, 1994 and incorporated by reference herein.
23(a) Report of KPMG Peat Marwick LLP
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying supplemental consolidated balance
sheets of FirstMerit Corporation (formerly First Bancorporation of Ohio) and
subsidiaries as of December 31, 1994 and 1993, and the related supplemental
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.
The supplemental financial statements give retroactive effect to the merger of
FirstMerit Corporation and The CIVISTA Corporation on January 31, 1995, which
has been accounted for as a pooling of interests as described in note 2 of the
supplemental financial statements. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these supplemental consolidated financial statements
based on our audits. We did not audit the financial statements of The CIVISTA
Corporation, which statements reflect total assets constituting 14% and 15% as
of December 31, 1994 and 1993, respectively of the consolidated totals, and
total interest income constituting 15%, 16% and 16% for the years ended
December 31, 1994, 1993 and 1992, respectively of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, in so far as it relates to the amounts
included for The CIVISTA Corporation, is based solely on the report of the
other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
The supplemental financial statements give retroactive effect to the
merger of FirstMerit Corporation and The CIVISTA Corporation on January 31,
1995, which has been accounted for as a pooling of interests as described in
Note 2 to the supplemental financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests methods in financial statements that
do not include the date of consummation; however, they will become the
historical consolidated financial statements of FirstMerit Corporation and
subsidiaries after financial statements covering the date of consummation of
the business combination are issued.
In our opinion, based on our audits and the report of the other
auditors, the supplemental 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, after giving retroactive effect to the
merger of FirstMerit Corporation and The CIVISTA Corporation as described in
note 2 to the supplemental financial statements in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand LLP
Cleveland, Ohio
January 31, 1995
3
<PAGE> 4
Supplemental Consolidated Balance Sheets
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands) December 31,
----------------------------------
Assets 1994 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities, market value $1,582,387
and $1,599,901, respectively $ 1,610,360 1,579,651
Federal funds sold 13,700 74,588
Loans 3,687,889 3,135,866
Less allowance for possible loan losses 35,834 35,030
------------ ----------
Net loans 3,652,055 3,100,836
------------ ----------
Total earning assets 5,276,115 4,755,075
------------ ----------
Cash and due from banks 238,073 237,878
Premises and equipment, net 83,223 77,555
Accrued interest receivable and other assets 125,162 108,790
------------ ----------
$ 5,722,573 5,179,298
============ ==========
Liabilities and Shareholders' Equity
- - ---------------------------------------------------------------------
Deposits:
Demand-non-interest bearing $ 733,171 694,610
Demand-interest bearing 475,099 454,530
Savings 1,633,189 1,713,858
Certificates and other time deposits 1,699,998 1,566,683
------------ ----------
Total deposits 4,541,457 4,429,681
------------ ----------
Securities sold under agreements to repurchase
and other borrowings 612,624 199,898
Accrued taxes, expenses, and other liabilities 45,173 49,598
------------ ----------
Total liabilities 5,199,254 4,679,177
------------ ----------
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 33,325,580 and 33,289,280
shares, respectively 99,882 95,992
Net unrealized holding
losses on available for
sale securities (23,205) -
Retained earnings 446,642 404,129
------------ ----------
Total shareholders' equity 523,319 500,121
------------ ----------
$ 5,722,573 5,179,298
============ ==========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 5
Supplemental Consolidated Statements of Income
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
(In thousands except per share data) 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 274,498 263,997 278,197
Interest and dividends on investment securities:
Taxable 86,941 85,872 93,506
Exempt from federal income taxes 7,411 7,804 8,388
---------- -------- --------
94,352 93,676 101,894
Interest on federal funds sold 2,168 3,535 4,997
---------- -------- --------
Total interest income 371,018 361,208 385,088
---------- -------- --------
Interest expense:
Interest on deposits:
Demand-interest bearing 10,429 10,567 12,617
Savings 43,372 46,471 50,227
Certificates and other time deposits 68,528 70,210 95,666
Interest on securities sold under agreements
to repurchase and other borrowings 17,852 7,901 8,895
---------- -------- --------
Total interest expense 140,181 135,149 167,405
---------- -------- --------
Net interest income 230,837 226,059 217,683
Provision for possible loan losses 4,624 8,056 18,965
---------- -------- --------
Net interest income after provision
for possible loan losses 226,213 218,003 198,718
---------- -------- --------
Other income:
Trust department 13,423 9,907 9,103
Service charges on deposits 20,482 21,483 20,895
Credit card fees 8,254 8,017 7,317
Investment securities gains (losses), net 653 2,411 2,104
Other operating income 27,844 30,091 29,173
---------- -------- --------
Total other income 70,656 71,909 68,592
---------- -------- --------
296,869 289,912 267,310
---------- -------- --------
Other expenses:
Salaries and wages 75,476 72,203 66,399
Pension and employee benefits 23,273 22,102 17,981
Net occupancy expense 13,446 12,361 11,458
Equipment expense 12,231 13,031 12,782
Other operating expenses 68,984 68,248 66,666
---------- -------- --------
Total other expenses 193,410 187,945 175,286
---------- -------- --------
Income before federal income taxes 103,459 101,967 92,024
Federal income taxes 32,110 33,335 29,194
---------- -------- --------
Net income $ 71,349 68,632 62,830
========== ======== ========
Weighted average number of common shares outstanding 33,310 33,259 33,198
========== ======== ========
Net income per share $ 2.14 2.06 1.89
========== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE> 6
Supplemental Consolidated Statements of Changes in Shareholders' Equity
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands except per share data)
Years ended December 31, 1994, 1993 and 1992
- - ----------------------------------------------------------------------------------------------------------------------------
Net unrealized
holding
losses Total
Common available for Retained shareholders'
stock Surplus sale securities earnings equity
------- ------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $53,963 39,674 - 320,773 414,410
Net income - - - 62,830 62,830
Cash dividends ($.79 per share) - - - (21,449) (21,449)
Cash dividends of CIVISTA - - - (1,431) (1,431)
Stock options exercised 287 697 - - 984
------- ------- ------ ------- -------
Balance at December 31, 1992 54,250 40,371 - 360,723 455,344
Net income - - - 68,632 68,632
Cash dividends ($.87 per share) - - - (23,486) (23,486)
Cash dividends of CIVISTA - - - (1,740) (1,740)
Stock options exercised 1,371 - - - 1,371
Elimination of par value 40,371 (40,371) - - -
------- ------- ------ ------- -------
Balance at December 31, 1993 95,992 - - 404,129 500,121
Net income - - - 71,349 71,349
Cash dividends ($.98 per share) - - - (26,489) (26,489)
Cash dividends of CIVISTA - - - (2,347) (2,347)
Stock options exercised 3,890 - - - 3,890
Market adjustment investment securities - - (23,205) - (23,205)
------- ------- ------ ------- -------
Balance at December 31, 1994 $99,882 - (23,205) 446,642 $523,319
======= ======= ====== ======= =======
</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 supplemental consolidated financial statements.
<PAGE> 7
Supplemental Consolidated Statements of Cash Flows
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
-----------------------------------------------------
1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C>
Operating Activities
- - --------------------
Net income $ 71,349 68,632 62,830
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 4,624 8,056 18,965
Provision for depreciation and amortization 8,353 7,542 7,755
Amortization of investment securities premiums, net 3,186 4,769 6,332
Amortization of income for lease financing (6,810) (2,620) (1,649)
Gain on sales of investment securities, net (653) (2,411) (2,104)
Deferred federal income taxes 11,172 (336) (4,853)
(Increase) decrease in interest receivable (5,002) 2,804 4,154
Increase (decrease) in interest payable 3,698 (1,371) (7,568)
Amortization of values ascribed to acquired intangibles 3,878 3,485 3,539
Other increases (decreases) (22,043) 1,989 13,115
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,752 90,539 100,516
--------- --------- ---------
Investing Activities
- - --------------------
Dispositions of investment securities:
Available-for-sale - sales 56,673 83,251 123,735
Held-to-maturity - maturities 389,234 - -
Available-for-sale - maturities 184,294 755,316 522,805
Purchases of investment securities held-to-maturity (263,518) - -
Purchases of investment securities available-for-sale (435,630) (911,641) (807,042)
Net decrease in federal funds sold 60,888 46,785 7,853
Net increase in loans and leases (549,033) (107,069) (48,756)
Purchases of premises and equipment (17,255) (11,419) (5,887)
Sales of premises and equipment 3,234 1,717 1,070
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (571,113) (143,060) (206,222)
--------- --------- ---------
Financing Activities
- - --------------------
Net increase (decrease) in demand, NOW and
savings deposits (21,539) 191,696 434,197
Net increase (decrease) in time deposits 133,315 (127,838) (277,317)
Net increase (decrease) in securities sold under
repurchase agreements and other borrowings 412,726 24,369 (6,373)
Cash dividends (28,836) (25,226) (22,880)
Proceeds from exercise of stock options 3,890 1,371 984
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 499,556 64,372 128,611
Increase in cash and cash equivalents 195 11,851 22,905
Cash and cash equivalents at beginning of year 237,878 226,027 203,122
--------- --------- ---------
Cash and cash equivalents at end of year $238,073 237,878 226,027
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
- - --------------------------------------------------
Cash paid during the year for:
Interest, net of amounts capitalized $ 97,836 99,870 124,002
Income taxes 31,100 34,765 31,710
========= ========= =========
<FN>
*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 supplemental consolidated financial statements.
</TABLE>
<PAGE> 8
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(Dollars in thousands)
1. Summary of Significant Accounting Policies
On January 31, 1995, FirstMerit Corporation merged with the CIVISTA
Corporation. The merger was accounted for by the pooling of interests
method. These supplemental consolidated financial statements and notes
give effect to this merger as though the companies have always been
combined. See Note 2.
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, Citizens National
Bank, 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.
<PAGE> 9
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
1. Summary of Significant Accounting Policies-Continued
(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 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 judgement,
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.
<PAGE> 10
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
1. Summary of Significant Accounting Policies-Continued
(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.
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
-------------- -------------- --------------
For the Three Months
Ended March 31, 1994
(unaudited):
<S> <C> <C> <C>
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>
<PAGE> 11
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
2. Acquisition-continued
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.
Details of the results of operations of the previously separate
corporations including CIVISTA operating results for its fiscal year ended
September 30 are as follows:
<CAPTION>
FirstMerit
Corporation CIVISTA Combined
Year ended December 31, 1994 ----------- ---------- -----------
<S> <C> <C> <C>
Interest income $316,809 54,209 371,018
Net interest income $200,932 29,905 230,837
Net income $ 60,301 11,048 71,349
=========== ========== ===========
Year ended December 31, 1993
Interest income $304,589 56,619 361,208
Net interest income $194,802 31,257 226,059
Net income $ 55,560 13,072 68,632
=========== ========== ===========
Year ended December 31, 1992
Interest income $323,597 61,491 385,088
Net interest income $189,486 28,197 217,683
Net income $ 53,273 9,557 62,830
=========== ========== ===========
</TABLE>
The Corporation expects to incur a one-time charge of approximately $16.2
million ($.42 per share) in the first quarter of 1995 related to the loss of
certain tax benefits and other restructuring expenses related to the merger.
<PAGE> 12
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
3. Investment Securities
<TABLE>
Investment securities are composed of:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
- - ----------------------------------------------------------------------------------------
December 31, 1994
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury securities
and U.S. Government agency
obligations $ 590,800 41 21,260 569,581 590,800
Obligations of state
and political
subdivisions 129,280 1,489 662 130,107 129,280
Mortgage-backed
securities 191,204 652 8,168 183,688 191,204
Other securities 46,780 597 662 46,715 46,780
- - ----------------------------------------------------------------------------------------
958,064 2,779 30,752 930,091 958,064
---------- ------- ------- --------- ---------
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
---------- ------- ------- --------- ---------
$1,646,065 2,847 66,525 1,582,387 1,610,360
========== ======= ======= ========= =========
</TABLE>
<PAGE> 13
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
3. Investment Securities-continued
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
- - ----------------------------------------------------------------------------------------
December 31, 1993
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government agency
obligations 929,087 9,271 2,197 936,161 929,087
Obligations of state
and political
subdivisions 147,673 2,768 250 150,191 147,673
Mortgage-backed
securities 419,648 8,471 642 427,477 419,648
Other securities 83,243 2,938 109 86,072 83,243
- - ----------------------------------------------------------------------------------------
$1,579,651 23,448 3,198 1,599,901 1,579,651
========== ======= ======= ========= =========
</TABLE>
<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.
<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 68,326 259,478 258,200
Due after one year through five years 149,604 143,962 385,370 372,476
Due after five years through ten years 28,360 27,260 167,160 158,444
Due after ten years 441,396 412,748 146,056 140,971
-------- --------- --------- --------
$688,001 652,296 958,064 930,091
======== ========= ========= ========
</TABLE>
<PAGE> 14
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
3. Investment Securities-Continued
Proceeds from sales of investment securities during the years ended
December 31, 1994 and 1993 were $56,673 and $83,251, respectively. Gross
gains of $825 and $2,491 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 $2,617 and $591,
respectively 800,441 632,354
Real estate 2,261,283 2,016,491
Lease financing 158,737 56,903
---------- ----------
$3,687,889 3,135,866
========== =========
</TABLE>
At December 31, 1994 and 1993, the Corporation serviced loans for others
aggregating $460,640 and $425,611, respectively.
The Corporation grants loans principally to customers located within the
state of Ohio.
<PAGE> 15
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
4. Loans-continued
<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 $42,725
Additions (deductions):
New loans 62,383
Repayments (43,796)
Changes in directors and their affiliations (15,001)
-------
Aggregate amount at end of year $46,311
=======
</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 $35,030 31,592 26,162
Additions (deductions):
Provision for possible loan losses 4,624 8,056 18,965
Loans charged off (7,695) (8,628) (17,691)
Recoveries on loans previously
charged off 3,875 4,010 4,156
------- ------- -------
Balance at end of year $35,834 35,030 31,592
======= ======= =======
</TABLE>
6. Restrictions on Cash and Dividends
The average balance on deposit with the Federal Reserve Bank to satisfy
reserve requirements amounted to $23,176 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
$26,379 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 $37,818,
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.
<PAGE> 16
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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 $11,454 11,181 -
Buildings 79,131 76,291 10-50 yrs
Equipment 69,065 64,461 3-50 yrs
Leasehold improvements 13,276 13,215 1-40 yrs
-------- -------
172,926 165,148
Less accumulated depreciation
and amortization 89,703 87,593
-------- -------
$83,223 77,555
======== =======
</TABLE>
Amounts included in other expenses for depreciation and amortization
aggregated $8,353, $7,542 and $7,755 for the years ended December 31, 1994,
1993 and 1992, respectively.
<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 Lease
December 31, commitments
------------- ----------------
<S> <C>
1995 $6,474
1996 5,368
1997 4,931
1998 4,372
1999 3,980
2000-2013 17,687
-------
$42,812
=======
</TABLE>
Rentals paid under noncancellable operating leases amounted to $7,325,
$6,085 and $5,399 in 1994, 1993 and 1992, respectively.
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 $227,843 and $149,978, respectively.
Interest expense on these certificates and deposits amounted to $9,406 in
1994, $6,362 in 1993, and $7,503 in 1992.
<PAGE> 17
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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
$374,351 and $198,586, respectively. In 1994 the weighted average annual
interest rate amounted to 4.77%, compared to 3.98% in 1993. The maximum
amount of these borrowings at any month end amounted to $622,435 in 1994
and $239,229 in 1993.
At December 31, 1994, the Corporation had $145,231 of Federal Home Loan
Bank advances of which: $100,116 have maturities within one year with
interest rates of 5.00% 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%. At December 31, 1993, the
Corporation had $14,327 of Federal Home Loan Bank advances of which:
$14,000 have maturities within one year with interest rates of 3.25% to
3.40%; and $327 with maturities over five years with interest rates of
5.91% to 6.76%.
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 $20,938 33,671 34,047
Deferred expense (benefit) 11,172 (121) (4,853)
Adjustment to deferred taxes as a
result of the 1994 rate increase - (215) -
------- ------ ------
$32,110 33,335 29,194
======= ====== ======
</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 3 3 4
Exercise of options at
acquisition 2 - -
Thrift loss reserve recapture (3) - -
Reduction to excess tax
reserves 3 - -
Other (1) (1) (2)
---- ---- ----
Effective tax rate 31% 33% 32%
==== ==== ====
</TABLE>
<PAGE> 18
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
10. Federal Income Taxes-Continued
<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 (438) (957)
Leasing 9,638 1,150 90
Pension expense 491 389 (874)
Postretirement
benefits (755) (834) (20)
Other, net 1,791 284 (1,618)
------- ------- -------
$11,172 (121) (4,853)
======= ======= =======
</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 $9,372 9,118
Excess of tax depreciation over book depreciation (3,715) (3,857)
Leasing book basis income over tax basis (12,864) (3,226)
Deferred loan fees tax basis income over book basis 3,048 3,309
Postretirement book basis expense over tax basis 2,238 1,483
Security portfolio tax basis over book basis 12,167 -
Other (2,183) 241
------ ------
$8,063 7,068
====== ======
</TABLE>
<PAGE> 19
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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.
<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 $44,114, $45,207 and
$37,990, respectively ($46,845) (48,675) (39,738)
======== ======= =======
Projected benefit obligation ($64,788) (67,129) (58,583)
Plan assets at fair value, primarily U.S.
government obligations, corporate bonds
and investments in equity funds 67,042 67,965 60,144
-------- ------- -------
Plan assets in excess of projected benefit
obligation 2,254 836 1,561
Unrecognized net gains (3,223) (2,208) (3,046)
Unrecognized prior service cost 4,103 2,433 807
Remaining unrecognized net asset
being amortized over employees'
average remaining service life (832) (1,929) (2,575)
-------- ------- -------
Prepaid (accrued) pension cost $2,302 (868) (3,253)
======== ======= =======
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>
<PAGE> 20
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
11. Benefit Plans-Continued
<TABLE>
Net pension cost consists of the following components:
<CAPTION>
Years ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost $3,729 3,090 2,695
Interest cost on projected benefit
obligation 4,902 4,575 4,409
Actual return on plan assets (963) (7,227) (4,753)
Net total of other components (4,347) 2,208 (74)
------ ------ ------
Net periodic pension cost $3,321 2,646 2,277
====== ====== ======
</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.
<PAGE> 21
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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 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
Accumulated postretirement benefit obligation: ------------ ------------
<S> <C> <C>
Retirees $(13,968) (13,736)
Fully eligible actives (4,657) (3,380)
Other actives (6,574) (6,439)
---------- -----------
Total accumulated postretirement benefit obligation (25,199) (23,555)
Unrecognized prior net loss 2,640 2,688
Unrecognized prior service costs - -
Unrecognized transition obligation 17,106 18,057
---------- -----------
Accrued postretirement benefit cost $ (5,453) (2,810)
========== ===========
</TABLE>
<PAGE> 22
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
12. Postretirement Medical and Life Insurance Plan-Continued
<TABLE>
Net postretirement benefit cost includes:
<CAPTION>
Year ended December 31,
------------------------------
1994 1993
---------- -----------
<S> <C> <C>
Service cost $ 786 525
Interest cost 1,892 1,634
Actual return on plan assets - -
Amortization of transition obligation 950 950
Net of other amortization and deferrals 138 -
------ ------
Net periodic postretirement cost $3,766 3,109
====== ======
</TABLE>
<TABLE>
The following actuarial assumptions effect 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>
<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>
<PAGE> 23
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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 177,550 522,820 $ 7.44 - 16.54
Add'l shares
reserved 1,100,000 -
Cancelled - (5,480) 10.82 - 16.54
Exercised - (99,660) 7.44 - 19.13
Granted (171,500) 171,500 14.25 - 19.13
--------------------------------------------------------------------------------
Balance December 31,
1992 1,106,050 589,180 7.44 - 19.13
Add'l shares
reserved 320,000 -
Cancelled (15,600) (1,400)
Exercised - (74,000) 7.44 - 24.13
Granted (112,680) 112,680 21.00 - 24.19
--------------------------------------------------------------------------------
Balance December 31,
1993 1,297,770 626,460 7.44 - 24.19
Cancelled - -
Exercised - (48,000) 7.44 - 24.13
Granted (73,590) 73,590 23.25 - 23.50
--------------------------------------------------------------------------------
Balance December 31,
1994 1,224,180 652,050 $ 7.44 - 24.19
================================================================================
</TABLE>
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.
<PAGE> 24
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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 $ 4,145 10,879
Investment securities 11,110 10,744
Loans to subsidiaries 56,063 50,566
Investment in subsidiaries, at equity in
underlying value of their net assets 442,275 426,858
Goodwill 687 974
Other assets 24,052 15,454
-------- -------
$538,332 515,475
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities $ 15,013 15,354
Shareholders' equity 523,319 500,121
-------- -------
$538,332 515,475
======== =======
</TABLE>
<PAGE> 25
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
14. Parent Company-Continued
<TABLE>
<CAPTION>
Condensed Statements of Income Years ended December 31,
--------------------------------------------------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries $44,916 58,816 54,805
Other income 23,423 20,567 16,720
------- ------ ------
68,339 79,383 71,525
Interest and other expenses 29,988 26,575 22,344
------- ------ ------
Income before federal income tax benefit
and equity in undistributed income
of subsidiaries 38,351 52,808 49,181
Federal income tax benefit (4,103) (1,903) (1,820)
------- ------ ------
42,454 54,711 51,001
Equity in undistributed income of
subsidiaries 28,895 13,921 11,829
------- ------ ------
Net income $71,349 68,632 62,830
======= ====== ======
</TABLE>
<PAGE> 26
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
14. Parent Company-Continued
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Years ended December 31,
--------------------------------------------------------------------------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Operating activities:
Net income $ 71,349 68,632 62,830
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income
of subsidiaries (28,895) (13,921) (11,829)
Other (11,467) 5,914 352
------- ------ ------
Net cash provided by operating
activities 30,987 60,625 51,353
------- ------ ------
Investing activities:
Proceeds from maturities of investment securities 3,544 428 -
Loans to subsidiaries (5,497) (22,352) (29,214)
Payments for investments in
and advances to subsidiaries (11,000) - -
Repayments for investments in
and advances to subsidiaries 1,171 411 889
Purchases of investment securities (993) (6,045) (568)
------- ------ ------
Net cash used by investing
activities (12,775) (27,558) (28,893)
------- ------ ------
Financing activities:
Cash dividends (28,836) (25,226) (22,880)
Proceeds from exercise of stock options 3,890 1,371 984
------- ------ ------
Net cash used by financing
activities (24,946) (23,855) (21,896)
------- ------ ------
Net increase (decrease) in cash and cash equivalents (6,734) 9,212 564
Cash and cash eqivalents at beginning of year 10,879 1,667 1,103
------- ------ ------
Cash and cash equivalents at end of year $ 4,145 10,879 1,667
======= ====== ======
</TABLE>
<PAGE> 27
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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.
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.
<PAGE> 28
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
15. Fair Value Disclosure of Financial Instruments-Continued
<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 $1,610,360 1,582,387 1,579,650 1,599,901
Federal funds sold 13,700 13,700 74,588 74,588
Net loans 3,652,055 3,552,350 3,100,836 3,142,722
Cash and due from banks 238,073 238,073 237,878 237,878
Accrued interest receivable 38,001 38,001 31,830 31,830
Financial liabilities:
Deposits 4,541,457 4,506,477 4,429,681 4,451,733
Securities sold under agreements to
repurchase and other borrowings 602,822 605,418 185,571 187,046
Accrued interest payable 10,321 10,321 6,010 6,010
Unrecognized financial instruments:
Commitments to extend credit - - - -
Stany 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.
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.
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:
<PAGE> 29
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
December 31,
------------------------------
1994 1993
---------- -----------
<S> <C> <C>
Commitments to extend credit $ 943,919 844,589
========= ===========
Standby letters of credit and financial guarantees written $ 52,357 51,784
========= ===========
Loans sold with recourse $ 16,356 23,165
========= ===========
----------------------------------------------------------------------------------------------
</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 counter party. 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.
<PAGE> 30
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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 actual
damages against the Bank plus punitive damages, interest, costs, attorneys
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>
In thousands (except per share data)
------------------------------------------
Quarters
------------------------------------------
First Second Third Fourth
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total interest
income 1994 $86,309 89,088 94,910 100,711
===================================================================================
1993 $91,598 91,195 89,423 88,992
===================================================================================
Net interest
income 1994 $55,354 57,032 58,579 59,872
===================================================================================
1993 $56,103 57,168 56,082 56,706
===================================================================================
</TABLE>
<PAGE> 31
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
18. Quarterly Financial Data (Unaudited)-Cont.
<TABLE>
<CAPTION>
In thousands (except for per share data)
------------------------------------------
Quarters
------------------------------------------
First Second Third Fourth
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Provision for possible
loan losses 1994 $1,381 889 1,198 1,156
===================================================================================
1993 $2,206 2,097 1,886 1,867
===================================================================================
Income before
federal
income taxes 1994 $25,733 25,659 25,333 26,734
===================================================================================
1993 $24,475 27,071 27,653 22,768
===================================================================================
Net income 1994 $17,866 17,862 17,602 18,019
===================================================================================
1993 $16,924 18,633 18,519 14,556
===================================================================================
Net income
per share 1994 $ .54 .54 .52 .54
===================================================================================
1993 $ .51 .56 .56 .43
===================================================================================
</TABLE>
<PAGE> 32
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
(Dollars in thousands)
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.
<PAGE> 33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTMERIT CORPORATION
Dated: April 17, 1995 By: /s/ Gary J. Elek
----------------------------------------------
Gary J. Elek, Senior Vice President and Treasurer
<PAGE> 34
FIRSTMERIT CORPORATION
CURRENT REPORT ON FORM 8-K
INDEX OF EXHIBITS
EXHIBIT
Item
10 Agreement of Affiliation and Plan of Merger dated as of August
10, 1994, by and between First Bancorporation of Ohio and The
CIVISTA Corporation. Filed as Exhibit 10(a) to Form 8-K filed
on August 16, 1994 and incorporated by reference herein.
23(a) Report of KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 23(A)
KPMG Peat Marwick LLP
Certified Public Accountants
1 Cascade Plaza, Suite 1110
Akron, OH 44308
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The CIVISTA Corporation:
We have audited the accompanying consolidated statements of condition of The
CIVISTA Corporation and subsidiaries as of September 30, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended September 30, 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 misstatements. 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 The CIVISTA
Corporation and subsidiaries as of September 30, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1(i) to the consolidated financial statements, the
Corporation adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, on October 1, 1993.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
November 23, 1994
