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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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.)
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III CASCADE PLAZA, 7TH FLOOR, AKRON, 44308 (216) 384-8000
OHIO ----------- -------------------
- - -------------------------------------- (ZIP CODE) (TELEPHONE NUMBER)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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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, 1996: $901,892,730.
Indicate the number of shares outstanding of registrant's common stock as
of February 1, 1996: 33,626,827 Shares of Common Stock, No Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement of FirstMerit Corporation, dated
February 28, 1996, 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 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"), 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"), FirstMerit Trust Company, N.A., a national
trust company, Naples, Florida ("FirstMerit Trust"), FirstMerit Bank, FSB, a
federal savings association, Pinellas, Florida ("FirstMerit FSB"), FirstMerit
Credit Life Insurance Company, an Arizona corporation ("FirstMerit Insurance"),
FirstMerit Community Development Corporation ("FirstMerit CDC"), Citizens
Investment Corporation, an Ohio corporation, and Citizens Savings Corporation of
Stark County, an Ohio corporation (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, including lending
practices, and financial resources of the Subsidiaries, but most day-to-day
affairs of Subsidiaries 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 FSB provides
demand, savings and time deposit accounts, consumer and commercial loans.
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, 1996, FirstMerit's
Subsidiaries operated 153 full service banking offices, and had 168 automated
teller machines, located in 16 counties in the States of Ohio and Florida, and
employed approximately 2,955 full- and part-time employees.
Presented in the following schedule is further specific information
concerning each of the financial institution Subsidiaries of FirstMerit as of
February 1, 1996:
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NUMBER
SUBSIDIARY COUNTIES OF DATE OF DATE OF OF
INSTITUTION OPERATION* ORGANIZATION BUSINESS AFFILIATION TYPE OF CHARTER OFFICES
- - ---------------- ---------------- ------------ ---------------- ----------- ---------------- ------
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First National Stark, Summit, 1947 Commercial bank 12/31/81 Federal 67
Bank of Ohio Cuyahoga and with trust
Portage services
The Old Phoenix Medina and 1873 Commercial bank 12/31/81 Federal 15
National Bank Cuyahoga with trust
of Medina services
EST National Lorain, Cuyahoga 1901 Commercial bank 12/12/83 Federal 23
Bank and Erie with trust
services
Peoples National Knox, Medina, 1892 Commercial bank 10/26/88 Federal 11
Bank Richland, Summit with trust
and Wayne services
Citizens Stark 1933 Commercial bank 3/21/89 Federal 19
National Bank with trust
services
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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>
FirstMerit Trust Collier, Florida 1990 National Trust 2/17/90 Federal 1
Company, N.A. Company
Peoples Bank, Ashtabula, 1890 Commercial bank 9/30/90 Federal 15
N.A. Geauga and Lake with trust
services
FirstMerit Bank, Pinellas, 1994 Savings 3/11/94 Federal 3
FSB Florida association
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* Ohio unless otherwise noted.
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.
FirstMerit FSB operates as a federally-chartered savings association 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. FirstMerit FSB 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.
FirstMerit 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 has filed applications for regulatory approval to merge
FirstMerit FSB with and into FirstMerit Trust, and in connection therewith
expand the charter powers of FirstMerit Trust under a new national bank charter.
FirstMerit expects to receive regulatory approval of these actions during the
first quarter of 1996.
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.
The Banks in 1995 jointly organized and capitalized FirstMerit Mortgage
Corporation ("FirstMerit Mortgage"), which is located in Canton, Ohio, in
offices owned by FirstMerit. FirstMerit Mortgage is engaged in the business of
originating residential mortgage loans and providing mortgage loan servicing for
itself, the Banks and third parties.
First National is the parent corporation of two wholly-owned Ohio
corporations organized in 1993 -- FirstMerit Leasing Company ("FirstMerit
Leasing") and FirstMerit Securities, Inc. ("FirstMerit Securities"). FirstMerit
Leasing primarily provides equipment lease financing and related services, while
FirstMerit Securities 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 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") and Citizens Investment Corporation ("CIC").
Although FirstMerit is in the process of selling all assets, winding up the
affairs, and formally dissolving CSC, it still owns a large portion of an office
condominium in Stark County, and certain low to moderate income housing units.
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.
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, Key Corp, Charter One 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 1996 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.
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
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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
FirstMerit FSB. 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 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, 1995, FirstMerit's consolidated total assets were
$5,596,521,000. Earnings for FirstMerit in 1995 were $31,318,000, or $.94 per
share, as compared to earnings of $71,349,000, or $2.14 per share, for the year
ended December 31, 1994. The earnings reported were impacted by several items,
including charges associated with the acquisition of CIVISTA incurred in the
first quarter of 1995, an early retirement
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program implemented in the second quarter and costs incurred in the fourth
quarter as part of a corporate reengineering program. These one-time charges
totaled $30,007,000, or $.89 per share, on an after-tax basis. Excluding the
one-time charges, earnings for the year would have totaled $61,326,000, or $1.83
per share. Additionally, an extraordinary gain during the fourth quarter
increased earnings by $5,599,000, or $.17 per share, net of taxes. Total cash
dividends paid to shareholders for the entire year was $1.02 per share, an
increase of $.04 per share over the previously stated annual payment of $.98.
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.
On a fully taxable equivalent basis, total interest income increased in
1995 by $44.9 million, or 11.9%, compared to 1994, which had shown an increase
of 2.5% from 1993. Interest expense increased by $40.8 million, or 29.1%, in
1995, resulting in a net interest income improvement of $4.1 million or 1.7%.
Non-interest income totaled $68.5 million in 1995, a decrease of 3.0% and 4.7%
from 1994 and 1993, respectively.
Shareholders' equity, which amounted to $542,881,000, increased by 3.74%
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, 1995, FirstMerit had a risk-based capital ratio of 15.80%, a Tier 1 capital
ratio of 14.53%, a leverage ratio of 9.66%, and was not subject to any order or
directive requiring it to improve its capital level.
FirstMerit increased its allowance for possible loan losses at year-end
1995 after considering a number of factors, including the following. The loan
portfolio mix had been reflective of several significant acquisitions of savings
associations, but is becoming more like a commercial bank as a result of growth
in the commercial, installment and credit card segments. In contrast,
residential mortgage holdings continue to shrink as the newly-formed FirstMerit
Mortgage Company sells its production and the existing portfolio is paid down or
sold. The resulting risk profile indicates an increased allowance. Also, rapid
loan growth indicative of FirstMerit's marketplace successes may be followed by
increases in delinquencies, problem loans and losses. Although delinquencies in
the consumer portfolio have shown some signs of increase compared to historical
levels, delinquencies remain well within industry norms and losses overall
remain low. At December 31, 1995, the allowance was $46.8 million, or 1.24% of
loans outstanding, compared to $35.8 million or .97% in 1994. The allowance
equaled 364.8% of nonperforming loans at December 31, 1995 compared to 229.0% in
1994. Net loan charge-offs were $8.8 million in 1995 compared to $3.8 million in
1994 and $4.6 million in 1993. As a percentage of average loans outstanding, net
charge-offs equaled .23% in 1995, .11% in 1994 and .15% in 1993.
ITEM 2. PROPERTIES
FIRSTMERIT CORPORATION
FirstMerit's executive offices and certain holding company operational
facilities, totaling 88,546 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.
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.
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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 32 of First National's other branches are
owned by First National, while the properties occupied by its remaining 34
branches are leased with various expiration dates. 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 Department to
renovated offices covering 11,900 square feet in III Cascade. First National
also has begun major renovations to its main office building, which it expects
to complete in early 1996. 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 is located in Main Place, a
four-story office building located in downtown Akron. The Trust Department
occupies 29,099 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 five of
Old Phoenix's branches are owned by Old Phoenix, while the properties occupied
by its remaining nine 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
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 17 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 five 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, which is leased by Citizens.
Citizens owns the properties occupied by eight of its other
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banking offices, while the properties occupied by the remaining eight are leased
under different leases with various expiration dates. Citizens also maintains a
trust office and private banking office at two additional leased locations.
Citizens also has automated teller machines and on-line terminals. The computer
operations of Citizens are provided through FirstMerit.
PEOPLES BANK, N.A.
The principal executive offices of Peoples N.A. are located in its main
office at 6725 Center Street, Mentor, Ohio, which is owned by Peoples N.A.
Peoples N.A. owns the properties occupied by five of its other 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.
FIRSTMERIT TRUST COMPANY, N.A.
FirstMerit 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 FirstMerit Trust.
FIRSTMERIT FSB
The principal executive offices of FirstMerit FSB are located in its main
office at 28059 U.S. Highway 19 North, Clearwater, Florida, under a short-term
lease. The properties occupied by FirstMerit FSB's remaining two branches are
leased at various expiration dates. No mortgage debt exists on the above
property owned by FirstMerit FSB. FirstMerit FSB also has on-line terminals.
CITIZENS SAVINGS CORPORATION OF STARK COUNTY
CSC owns a large portion of an office condominium in Stark County, Ohio and
certain low to moderate income housing units.
FIRSTMERIT MORTGAGE CORPORATION
The Banks in 1995 jointly organized and capitalized FirstMerit Mortgage,
which is engaged in the business of originating residential mortgage loans and
providing mortgage loan servicing for itself, the Banks and third parties.
FirstMerit Mortgage conducts its business in property owned by FirstMerit
located at 4455 Hills and Dales Road, Canton, Ohio.
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
compensatory damages against First National in the approximate amount of $7.3
million, plus punitive damages, interest, costs, attorneys fees and other
relief. Additional lawsuits 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 in unlikely. 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. In August 1995, the appellate court reversed the federal court's
decision and remanded the case to the federal court for further proceedings.
FirstMerit continues to believe First National has meritorious defenses to all
claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders of FirstMerit.
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EXECUTIVE OFFICERS OF REGISTRANT
The following persons are the executive officers of FirstMerit as of
February 28, 1996. Unless otherwise designated, they are officers of FirstMerit,
and unless otherwise stated, they have held their indicated positions for the
past five years.
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DATE
APPOINTED TO
NAME AGE FIRSTMERIT POSITION AND BUSINESS EXPERIENCE
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John R. Cochran 53 03-01-95 President and Chief Executive Officer since
March 1, 1995; previously President and Chief
Executive Officer of Norwest Bank Nebraska,
N.A.
Howard L. Flood 61 12-31-81 Chairman of the Board of Directors; previously
President and Chief Executive Officer
John R. Macso 49 11-08-90 Executive Vice President; President and Chief
Executive Officer of First National since
August 1, 1995; previously Executive Vice
President of First National since August 18,
1994; previously Senior Loan/Credit Officer
since August 1, 1991; previously President and
Chief Executive Officer of Peoples N.A.
Scott A. Lyons, Jr. 50 05-28-91 Executive Vice President since May 18, 1995;
previously Senior Vice President and Executive
Vice President of First National since May 28,
1991
Phillip E. Becker 51 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 46 08-09-91 Executive Vice President; Executive Vice
President of First National since July 20,
1995; previously President and Chief Executive
Officer of Peoples N.A. from August 1, 1991
until July 20, 1995; previously Executive Vice
President and Senior Vice President of Peoples
N.A.
Jack R. Gravo 49 02-16-95 Executive Vice President; President and Chief
Executive Officer of Citizens since February 1,
1995; previously President of The CIVISTA
Corporation
Bruce M. Kephart 44 07-25-95 Executive Vice President; President and Chief
Executive Officer of Peoples N.A. since July
25, 1995; previously Vice President, Bank One,
Cleveland, N.A.
George P. Paidas 49 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 55 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
Gregory R. Bean 45 04-10-91 Senior Vice President; Senior Vice President
and Senior Trust Officer of First National;
Executive Vice President and Chief Operating
Officer of FirstMerit Trust
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
DATE
APPOINTED TO
NAME AGE FIRSTMERIT POSITION AND BUSINESS EXPERIENCE
- - --------------------- ------ ------------- -----------------------------------------------
<S> <C> <C> <C>
Gary J. Elek 44 02-11-88 Senior Vice President and Treasurer; Senior
Vice President and Controller of First National
until January 1, 1992
Terry E. Patton 47 04-10-85 Senior Vice President, Counsel and Secretary;
Senior Vice President, Counsel and Secretary of
First National
Carrie L. Tolstedt 36 05-22-95 Senior Vice President since May 22, 1995;
previously Senior Vice President of Norwest
Bank Nebraska, N.A. from July 1993 to May 1995;
previously Vice President Norwest Bank
Nebraska, N.A.
</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:
STOCK PERFORMANCE AND DIVIDENDS
<TABLE>
<CAPTION>
PER SHARE
BIDS -------------------------
QUARTER ------------------------- DIVIDEND BOOK
ENDING HIGH LOW RATE VALUE*
- - ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
03-31-94 $26.00 $22.50 $ 0.2350 $15.23
06-30-94 26.00 22.50 0.2500 15.50
09-30-94 27.75 23.75 0.2500 15.70
12-31-94 27.50 21.75 0.2500 15.72
- - ----------------------------------------------------------------------
03-31-95 25.50 21.44 0.2500 15.73
06-30-95 26.75 22.50 0.2500 16.04
09-30-95 27.25 24.50 0.2500 16.24
12-31-95 30.50 24.50 0.2700 16.23
- - ----------------------------------------------------------------------
</TABLE>
- - ---------------
*Based upon number of shares outstanding at the end of each quarter.
This table sets forth the high and low closing bid quotations, dividend
rates and book values per share for the calendar periods indicated. 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, 1996 there were approximately 7,190 shareholders of record
of FirstMerit Common Stock.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Results of Operations
Interest income............. $ 416,627 371,018 361,208 385,089 410,833 419,494
Conversion to fully-tax
equivalent............... 3,840 4,590 5,264 5,679 6,977 9,104
---------- --------- --------- --------- --------- ---------
Interest income*............ 420,467 375,608 366,472 390,768 417,810 428,598
Interest expense............ 180,933 140,181 135,149 167,405 227,892 249,943
---------- --------- --------- --------- --------- ---------
Net interest income*........ 239,534 235,427 231,323 223,363 189,918 178,655
Provision for possible loan
losses................... 19,763 4,624 8,056 18,965 12,750 13,396
Other income................ 68,517 70,656 71,909 68,591 65,854 51,513
Other expense............... 227,779 193,410 187,945 175,286 167,495 151,883
---------- --------- --------- --------- --------- ---------
Income before federal income
taxes*................... 60,509 108,049 107,231 97,703 75,527 64,889
Federal income taxes........ 30,950 32,110 33,335 29,194 20,210 14,409
Fully-tax equivalent
adjustment............... 3,840 4,590 5,264 5,679 6,977 9,104
---------- --------- --------- --------- --------- ---------
Federal income taxes*....... 34,790 36,700 38,599 34,873 27,187 23,513
---------- --------- --------- --------- --------- ---------
Income before extraordinary
item........................ 25,719 71,349 68,632 62,830 48,340 41,376
Extraordinary item -- gain on
disposition of assets after
combination (net of tax
effect)..................... 5,599 -- -- -- -- --
---------- --------- --------- --------- --------- ---------
Net income.................... $ 31,318 71,349 68,632 62,830 48,340 41,376
========= ======== ======== ======== ======== ========
Per share:
Income before
extraordinary item..... $ 0.77 2.14 2.07 1.89 1.46 1.25
Extraordinary item (net
of tax effect)......... 0.17 -- -- -- -- --
---------- --------- --------- --------- --------- ---------
Net income............... 0.94 2.14 2.07 1.89 1.46 1.25
========= ======== ======== ======== ======== ========
Cash dividends........... $ 1.02 0.98 0.87 0.79 0.77 0.71
Dividend payout ratio....... 132.68% 45.72% 42.13% 41.71% 52.78% 56.85%
Average Ratios
Return on total assets...... 0.55% 1.32% 1.34% 1.28% 1.01% 0.89%
Return on shareholders'
equity................... 5.93% 13.86% 14.30% 14.46% 12.07% 10.97%
Shareholders' equity to
total assets............. 9.34% 9.56% 9.38% 8.86% 8.40% 8.15%
Balance Sheet Data
Total assets (at December
31)......................... $5,596,521 5,722,573 5,179,298 5,054,267 4,855,127 4,760,593
Daily averages:
Total assets............. $5,654,811 5,385,758 5,113,854 4,907,738 4,768,971 4,629,049
Earning assets........... 5,249,598 4,993,972 4,691,001 4,510,951 4,392,020 4,239,334
Deposits and other
funds.................. 5,058,333 4,820,339 4,581,960 4,416,929 4,314,717 4,190,557
Shareholders' equity..... 528,038 514,860 479,792 434,604 400,474 377,245
</TABLE>
- - ---------------
*Fully-tax equivalent basis
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE YEARS 1995, 1994 AND 1993
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 1995, 1994 and 1993. 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.
All financial data has been restated to give effect to acquisitions
accounted for on a pooling of interests 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 1995 totaled $31,318,000, or $.94
per share, compared with $71,349,000, or $2.14 per share, earned in 1994.
Earnings for the year were impacted by several items including charges
associated with the acquisition of The CIVISTA Corporation ("CIVISTA") in the
first quarter of 1995, an early retirement program implemented in the second
quarter and costs incurred in the fourth quarter as part of a reengineering
program. In total, the one-time charges amounted to $30,007,000, or 89 cents per
share, on an after-tax basis. Additionally, an extraordinary gain during the
fourth quarter increased earnings by $5,599,000, or 17 cents per share, net of
taxes. Excluding the one-time charges, earnings for the year would have totaled
$61,326,000, or $1.83 per share.
In January 1995, the Corporation completed the acquisition of CIVISTA, an
$800 million Savings and Loan holding company headquartered in Canton, Ohio
serving Stark County. The acquisition of ten branches in the Stark County
market, which is contiguous to the Corporation's largest market, increased
market share in Stark County from six percent to twenty-five percent making the
Corporation number one among financial institutions in Stark County market
share. CIVISTA's subsidiary Citizens Savings Bank was merged with The First
National Bank in Massillon to form Citizens National Bank, a $1 billion
commercial bank which provides a complete range of banking products and
services.
During the second quarter, management began developing a plan to improve
operating efficiencies and increase revenues, thereby enhancing profitability
and, ultimately, shareholder value. Working with both internal and external
support groups, the implementation of the reengineering plan began during the
third quarter and continued through year end.
In order to increase operating efficiencies, each operating unit was
studied to determine the most efficient and effective way to deliver its
service. The result was to create centralized units which reduce redundancy
thereby increasing efficiency. By year-end 1995, most operating units have been
centralized with the remainder to be completed in early 1996. In addition,
studies of the branch delivery system were undertaken to improve customer
service while maintaining cost effectiveness. A major contribution to improved
branch efficiency and service was provided by the technological development of a
new teller system.
With the aim of complementing the plan to increase shareholder value
through better operating efficiencies, management developed strategies to
increase revenues, especially through retail opportunities. To aid in the
development of the retail opportunity plan, the Corporation commissioned an
extensive market study to identify customer and product opportunities. The
market study focused on the current market situation, past customer financial
behavior, and future customer needs. The results of the study were encouraging
and identified opportunities for cross-selling of products and earning all of
our customers' business. To help our employees effectively sell FirstMerit
products, extensive training was performed, new platform-based sales technology
was developed, and a new and improved product line was introduced. All of these
items were acted upon to deepen customer relationships and improve customer
retention. Management
11
<PAGE> 13
recognizes that building a franchise that captures and holds the right customers
and profits is what builds lasting shareholder value.
More specific details of the one-time after-tax charges are as follows:
$2,198,000 related to an early retirement program, $16,214,000 related to the
CIVISTA acquisition, and reengineering charges totaling $11,595,000. The pre-tax
reengineering charges can be further categorized as follows: $6,584,000 in
adjustments to the value of buildings, equipment and other assets, $2,875,000
increase to reserves, $4,687,900 in severance costs, and $3,691,200 in
consulting, sales training and merchandising expense concurrent with the launch
of FirstMerit's new retail emphasis.
The Corporation increased its allowance for possible loan losses after
considering the following factors. The mix of the portfolio, reflective of
several Savings & Loans acquisitions, is becoming less thrift-like and more like
a commercial bank as a result of growth in the commercial, installment and
credit card segments. This growth has been significant and is expected to
continue. In contrast, residential mortgage holdings continue to shrink as the
newly formed FirstMerit Mortgage Company sells its production and the existing
portfolio is paid down or sold. The resulting risk profile requires a more
substantial allowance. Also, while indicative of FirstMerit's marketplace
successes, rapid loan growth is sometimes followed by increases in
delinquencies, problem loans and losses. Delinquencies in the consumer portfolio
have shown some signs of increase compared to historical levels but remain well
within industry norms and losses remain low.
The extraordinary item resulted from the sale of several apartment
complexes formerly owned by a former CIVISTA subsidiary. Accounting rules
require this gain to be recognized as an extraordinary item associated with the
disposition of assets after a business combination. The business combination in
this case was the acquisition of CIVISTA which was completed January 31, 1995.
Return on average assets for 1995 was .55% compared with 1.32% in 1994.
Return on equity for the year was 5.93% compared with 13.86% in 1994. Without
the one-time charges, ROA for 1995 would have been 1.10% and ROE for 1995 would
have been 11.35%.
On November 17, 1995, the Board of Directors of the Corporation approved an
increase in the Corporation's regular quarterly cash dividend of 8%, from $.25
per share to $.27 per share, to shareholders of record as of November 27, 1995,
and also implemented a share repurchase program. The share repurchase program
was initiated in the fourth quarter as 84,160 shares of the Corporation's common
stock were repurchased in the open market. The repurchased shares are accounted
for as treasury stock. Shareholders' equity is now $542,881,000, an increase of
4% over the prior year.
As this annual report was being printed, the anticipated assessment related
to the Savings Association Insurance Fund (S.A.I.F.) had not yet materialized.
This is an industry-wide issue that will impact all financial institutions with
S.A.I.F. insured deposits. Assuming the anticipated legislation is approved by
Congress, it may cost banks up to $.85 per $100 in insured deposits. The
Corporation has approximately $1.5 billion in S.A.I.F. insured deposits.
12
<PAGE> 14
The following table summarizes the changes in earnings per share for 1995
and 1994.
<TABLE>
<CAPTION>
1995/ 1994/
(DOLLARS) 1994 1993
- - --------------------------------------------- -------- --------
<S> <C> <C>
CHANGES IN EARNINGS PER SHARE
Net income for 1995 and 1994,
respectively............................ $ 2.14 2.06
Increases (decreases) attributable to:
Net interest income -- taxable
equivalent............................ 0.12 0.12
Provision for possible loan losses...... (0.45) 0.10
Trust services.......................... (0.08) 0.11
Service charges on deposit accounts..... 0.00 (0.03)
Credit card fees........................ 0.03 0.01
Securities gains, net................... 0.00 (0.05)
Other income............................ (0.02) (0.07)
Salaries and employee benefits.......... (0.27) (0.13)
Net occupancy expense................... (0.09) (0.03)
Equipment expense....................... (0.04) 0.02
Other expenses.......................... (0.15) (0.02)
Charges related to CIVISTA
acquisition........................... (0.48) 0.00
Extraordinary gain-disposition of
assets................................ 0.17 0.00
Federal income taxes -- taxable
equivalent............................ 0.06 0.05
-------- --------
Net change in net income................ (1.20) 0.08
-------- --------
Net income per share.................... $ 0.94 2.14
======== ========
</TABLE>
13
<PAGE> 15
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 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>
1995
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest bearing liabilities..................... $4,333,046 3.83% 166,123
Non-interest bearing liabilities and equity...... 916,552 8.01%* 73,411
---------- --------
$5,249,598 239,534
========= ========
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
<S> <C> <C> <C>
Interest bearing liabilities..................... $4,153,870 4.15% 172,240
Non-interest bearing liabilities and equity...... 840,102 7.52%* 63,186
---------- --------
$4,993,972 235,426
========= ========
</TABLE>
<TABLE>
<CAPTION>
1993
------------------------------------
AVERAGE NET
EARNING INTEREST INTEREST
ASSETS SPREAD INCOME
---------- -------- --------
<S> <C> <C> <C>
Interest bearing liabilities..................... $3,939,130 4.38% 172,569
Non-interest bearing liabilities and equity...... 751,871 7.81%* 58,735
---------- --------
$4,691,001 231,304
========= ========
</TABLE>
- - ---------------
*Yield on earning assets
Net interest income increased $4.1 million, or 1.7%, to $239.5 million in
1995 compared to $235.4 million in 1994. The increase resulted from both higher
outstandings and higher yields on earning assets. More specifically, average
outstandings on earning assets increased 5.1% from $5.0 billion in 1994 to $5.2
billion in 1995, and the yield on earning assets increased 49 basis points from
7.52% in 1994 to 8.01% in 1995.
Earning assets funded by non-interest bearing liabilities increased from
16.8% in 1994 and 16.0% in 1993 to 17.5% in 1995. Partially offsetting the
benefit of higher yields on earning assets was a higher cost of interest bearing
liabilities and equity that totaled 4.18% in 1995 compared to 3.37% and 3.43% in
1994 and 1993, respectively.
14
<PAGE> 16
The table below provides an analysis of the effect of changes in interest
rates and volumes on net interest income in 1995 and 1994.
CHANGES IN NET INTEREST DIFFERENTIAL --
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995 AND 1994 1994 AND 1993
-------------------------- ---------------------------
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.............................. $(9,676) 5,571 (4,105) 6,867 (5,799) 1,068
Tax-exempt........................... (1,759 ) 117 (1,642) 353 (1,036) (683)
Loans.................................. 40,054 11,039 51,093 20,209 (10,073) 10,136
Federal funds sold..................... (2,529 ) 2,042 (487) (2,437 ) 1,071 (1,366)
------- ------- ------ ------- ------- -------
Total interest income.................. 26,090 18,769 44,859 24,992 (15,837) 9,155
------- ------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing.............. (742 ) (485) (1,227) 593 (731) (138)
Savings.............................. (4,988 ) 54 (4,934) 1,179 (4,278) (3,099)
Certificates and other time
deposits.......................... 9,583 19,407 28,990 (1,439 ) (243) (1,682)
Federal funds purchased, securities
sold under agreements to repurchase
and other borrowings................. 13,793 4,129 17,922 8,382 1,570 9,952
------- ------- ------ ------- ------- -------
Total interest expense................. 17,646 23,105 40,751 8,715 (3,682) 5,033
------- ------- ------ ------- ------- -------
Net interest income.................... $8,444 (4,336) 4,108 16,277 (12,155) 4,122
======= ======= ====== ======= ======= =======
</TABLE>
- - ---------------
Note: The rate volume variance has been allocated entirely to volume.
Total interest income increased by $44.9 million in 1995 or 11.9% compared
to 1994, which increased 2.5% from 1993. The 1995 increase resulted from both
strong loan demand and higher yields on all earning assets. The increases in
loans accounted for $26.1 million, or 58% of the increase, while higher yields
on securities, loans and federal funds sold, in total, contributed $18.8
million, or the remaining 42%.
In 1994, substantial loan volume contributed $25.0 million to interest
income outpacing a decline in yields on all earning assets which decreased
interest income by $15.8 million. Overall, 1994 interest income increased $9.2
million over 1993.
Interest expense increased $40.8 million or 29.1% in 1995 compared to 1994
largely affected by increased outstandings in certificate and other time
deposits (CDs) and short term borrowings as well as higher deposit rates paid on
CDs. Much of the funding of the loan volume increase noted above came from
attraction of CD balances and short term borrowings as demand deposit and
savings balances declined during the year. Increases in interest expense due to
volume totaled $17.6 million, or 43% of the total increase since last year.
Increases in rates paid on deposits, again primarily CDs, caused the remaining
57% increase in interest expense.
During 1994, interest expense increased $5.0 million or 3.7% over 1993 as
higher short term borrowings offset a decline in rates paid on deposits. In
total, increases in volume during 1994 raised interest expense by $8.7 million
while declining rates lessened interest expense by $3.7 million.
15
<PAGE> 17
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 4.56% in 1995 compared to 4.85% in 1994 and
5.04% in 1993. As interest rates rose during 1995, the yield on earning assets
ended the year at 8.01% up from 7.52% in 1994 and 7.81% in 1993. The cost of
funding the earning assets increased 81 basis points from 3.37% in 1994 to 4.18%
in 1995. The increase in the cost of funds more than offset the increase in the
yield of earning assets resulting in the decline in net interest margin. In
summary, even though net interest income increased $4.1 million or 1.7% during
1995, the margin earned on the net earning assets decreased as deposit rates
rose more than earning assets rates.
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income............................ $ 235,694 230,837 226,059
Tax equivalent adjustment...................... 3,840 4,590 5,264
---------- --------- ---------
Net interest income -- FTE..................... $ 239,534 235,427 231,323
========= ======== ========
Average earning assets......................... $5,249,598 4,993,972 4,691,001
========= ======== ========
Net interest margin............................ 4.56% 4.71% 4.93%
========= ======== ========
</TABLE>
The mix of earning assets was affected by a strong loan demand during 1995
as average loan outstandings increased 14.0% compared to one year ago. Average
loans equaled 72.7% of average earning assets compared to 67.1% and 66.2% in
1994 and 1993, respectively.
The amount of average earning assets funded by non-interest bearing
liabilities and equity totaled 17.5% in 1995 compared to 16.8% in 1994 and 16.0%
in 1993.
NON-INTEREST INCOME
Non-interest income totaled $68.5 million in 1995, a decrease of 3.0% and
4.7% from 1994 and 1993 totals, respectively.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Trust fees............................................. $10,712 13,423 9,907
Service charges on deposits............................ 20,622 20,482 21,483
Credit card fees....................................... 9,372 8,254 8,017
Service fees -- other.................................. 5,724 5,395 4,678
Mortgage sale and servicing............................ 3,236 1,817 4,686
Securities gains, net.................................. 539 653 2,411
Other income........................................... 18,312 20,632 20,727
------- ------ ------
$68,517 70,656 71,909
======= ====== ======
</TABLE>
Trust fees declined $2.7 million from 1994 to $10.7 million. If
nonrecurring fees collected in 1994 of approximately $2.5 million were excluded,
the decline was only $200,000 or 1.8% on an adjusted basis.
Service charges on deposits increased less than one percent over last year.
The slight increase corresponds to the less than one percent increase in average
deposits outstanding during 1995 compared to the prior year. Service charges on
deposits accounted for 30.1% of total non-interest income in 1995 compared to
29.0% in
16
<PAGE> 18
1994 and 29.9% in 1993. Credit card fees continued its rising trend as 1995 fees
were $1.1 million, or 13.5%, higher than the previous year. The same fees in
1994 were 3.0% higher than 1993 totals.
Income earned from mortgage sales and servicing rebounded from 1994
totaling $3.2 million, an increase of 78.1% over last year. The Corporation's
practice is to sell all fixed rate thirty year residential mortgage loans
originated while retaining the servicing for these loans. The current year
increase in these fees was a result of declining mortgage rates, a related
increase in origination and sales, and a favorable secondary sales market. In
May 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights." This
statement will be adopted by the Corporation for the fiscal year ended December
31, 1996. The future effect of this statement on the Corporation's results has
not yet been determined. Other income decreased $2,320,000 from 1994 to
$18,312,000 and accounted for 26.7% of non-interest income compared with 29.2%
and 28.8% in 1994 and 1993, respectively.
Non-interest income covered 30.1% of non-interest expense in 1995 compared
with 36.5% in 1994 and 38.3% in 1993. The current year coverage percentage is
lower than expected due to several one-time reengineering charges incurred
during the year. These charges are described in more detail earlier in this
section, as well as in Note 17 to the consolidated financial statements and in
the Earnings Summary and Non-interest expense sections of management's
discussion and analysis of financial condition and results of operations.
Excluding the one-time charges, 1995 non-interest income would have totaled
$68.6 million and would have covered 33.4% of adjusted non-interest expense.
Non-interest income covered 36.5% in 1994 and 38.3% in 1993. The Corporation,
and the banking industry as a whole, 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 $34.4 million, or 17.8% in 1995 compared to
1994. Percentage increases for 1994 over 1993 and 1993 over 1992 were 2.9% and
7.2%, respectively. One-time charges related to the CIVISTA acquisition, an
early retirement program, and reengineering charges recorded during 1995 totaled
$24.3 million and accounted for 70.1% of the increase.
OTHER EXPENSES
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and wages.................................. $ 80,501 75,476 72,203
Pension and benefits................................ 27,234 23,273 22,102
-------- ------- -------
Salaries, wages, pension and benefits............... 107,735 98,749 94,305
Net occupancy expense............................... 16,598 13,446 12,361
Equipment expense................................... 13,417 12,231 13,031
Taxes, other than federal income taxes.............. 6,026 6,995 6,355
Stationery, supplies and postage.................... 10,777 8,808 8,143
Bankcard, loan processing and other fees............ 11,422 9,557 11,892
Advertising......................................... 5,766 3,191 3,296
Professional services............................... 7,911 4,722 4,479
Telephone........................................... 3,807 3,095 2,792
FDIC assessment..................................... 7,052 9,833 8,531
Amortization of intangibles......................... 3,534 3,878 3,485
Other operating expenses............................ 33,734 18,905 19,275
-------- ------- -------
Total other expenses................................ $227,779 193,410 187,945
======== ======= =======
</TABLE>
Salaries and wages totaled $80.5 million in 1995, an increase of 6.6% or
$5.0 million. Excluding severance and related charges of $4.1 million recorded
during the fourth quarter, salaries and wages would have increased 1.2% during
the year. Even though a modest increase, on an adjusted basis, occurred during
the year,
17
<PAGE> 19
the Corporation's consolidation of back-room operations is expected to result in
a decline in salaries and wages for 1996. For 1995, salaries and wages accounted
for 35.3% of operating expenses compared to 39.0% and 38.4% in 1994 and 1993,
respectively. After adjusting for the one-time charges, salaries and wages would
have made up 37.5% of operating expenses. Pension and benefits expense increased
$3.9 million in 1995 compared to one year ago or 16.7%. Early retirement charges
and benefit costs related to certain severance agreements taken during the year
accounted for the entire $3.9 million increase. In 1995 the Corporation spent
33.8 cents in benefits for every dollar of salaries and wages. After excluding
the one-time early retirement and severance related expenses recorded during the
year, pension and benefit expenses comprised 30.5 cents for every dollar of
salary and wages compared to 30.8 cents in 1994 and 30.6 cents in 1993. 1993
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.
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 $13.4 million in 1994 to $16.6 million in 1995, an
increase of $3.2 million. This increase was primarily due to the acquisition and
renovation of a new Corporate headquarters in 1995 and the renovation of several
subsidiary banking facilities to better serve our customers. Equipment expense
increased from $12.2 million in 1994 to $13.4 million in 1995 due to purchases
of new teller and data processing equipment. The identity change, utilizing the
"FirstMerit" name on forms, documents, etc., and higher paper costs associated
with these documents were the main reasons for higher stationery, supplies and
postage expenses during 1995. Similar to the higher stationery, supplies and
postage expenses, increased advertising costs were directly related to the
identity change and the marketing efforts surrounding the FirstMerit name.
Professional services totaled $7.9 million in 1995 compared with $4.7
million in 1994 and $4.5 million in 1993. As discussed in the Earnings Summary
section of the Annual Report, external support groups were used to help develop
a plan to improve operating efficiencies, increase revenues and shareholder
value, and to help train our employees to effectively sell our new products and
services. The increase during 1995 of $3.2 million was directly attributable to
the actions just mentioned.
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 cents per $100.00 of deposits to 31 cents per
$100.00 of deposits, depending on the capital and supervisory strength of the
institution. During the third quarter of 1995, the FDIC reduced the effective
rate of the annual assessment on Bank Insurance Fund ("BIF") deposits to
approximately 4 cents per $100.00 of deposits. As a result, the Corporation
received a refund for a portion of the 1995 BIF-related premiums paid to date.
The Corporation's refund totaled approximately $1.8 million and contributed to a
decline of $2.8 million in the total FDIC assessments paid by the Corporation
during the year. Total assessments paid in 1994 and 1993 were $9.8 million and
$8.5 million, respectively.
Other operating expenses amounted to $33.7 million in 1995 compared to
$18.9 million in 1994 and $19.3 million in 1993. Contributing to the $14.5
million increase during the year were charges of $4.6 million related to
severance payments made to certain individuals and fees paid to financial
advisors as part of the first quarter CIVISTA acquisition, and adjustments to
the value of buildings, equipment, and other assets as part of the fourth
quarter reengineering charges totaling $6.6 million.
18
<PAGE> 20
FEDERAL INCOME TAX
Federal income tax expense totaled $31.0 million in 1995 compared to $32.1
million in 1994 and $33.3 million in 1993. In 1995 the effective federal income
tax rate for the Corporation equaled 54.6% compared to 31.0% in 1994 and 32.7%
in 1993.
The increase in the effective tax rate for 1995 was primarily due to the
recapture of the bad debt reserve totaling approximately $12.4 million, and the
non-deductibility of certain professional fees associated with the CIVISTA
acquisition.
On August 10, 1993, Congress enacted the Omnibus Budget Reconciliation Act
of 1993 which included among its provision 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 as 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.
During 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report, A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities. The Special Report, among
other things, permits a one-time opportunity for institutions to reassess the
appropriateness of their designations of all securities. After reassessing the
classifications, institutions were permitted to reclassify between designations
as appropriate. As a result of FASB's Special Report, the Corporation
reclassified all investment securities as available-for-sale. This
reclassification provides the Corporation with more flexibility to respond,
through the portfolio, to changes in market interest rates, or to increases in
loan demand or deposit withdrawals. The reclassification of the former
held-to-maturity investments to available-for-sale accounted for $1.2 million or
5.5%, of the total $21.9 million 1995 increase in shareholders' equity. Improved
market conditions during 1995 on the former available-for-sale securities
accounted for the remaining $20.7 million increase.
At December 31, 1995 investment securities totaled $1,403.1 million
compared to $1,610.4 million one year ago, a decrease of 12.9%. Investment
securities totaled $1,579.7 million at December 31, 1993.
During 1995 approximately $107.7 million of investment securities were sold
for which a $.539 million net gain was realized.
A summary of investment securities' carrying value is presented below as of
December 31, 1995, 1994 and 1993. Presented with the summary is a maturity
distribution schedule with corresponding weighted average yields.
19
<PAGE> 21
CARRYING VALUE OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and Government agency
obligations.................................. $ 864,967 1,072,464 929,087
Obligations of states and political
subdivisions................................. 108,842 129,280 147,673
Mortgage-backed securities..................... 331,556 306,711 419,648
Other securities............................... 97,694 101,905 83,243
---------- --------- ---------
$1,403,059 1,610,360 1,579,651
========= ======== ========
</TABLE>
MATURITIES OF THE INVESTMENT SECURITIES AT DECEMBER 31, 1995
<TABLE>
<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............ $ 70,699 5.64% 144,587 5.52% -- -- -- --
U.S. Government agency
obligations....................... 34,897 5.26% 266,944 6.16% 52,048 6.43% 295,792 6.09%
Obligations of states and political
subdivisions...................... 37,689 7.62%* 49,530 7.32%* 13,555 7.76%* 8,068 9.20%*
Mortgage-backed securities.......... 2,689 7.80% 48,905 5.98% 69,501 6.49% 210,461 7.01%
Other securities.................... 1,364 8.30% 15,031 6.66% 916 5.88% 80,383 6.68%
-------- -------- -------- -------- -------- -------- -------- --------
$147,338 6.12% 524,997 6.09% 136,020 6.59% 594,704 6.54%
======== ======== ======= ======== ======= ======== ======= ========
Percent of total.................... 10.50% 37.42% 9.69% 42.39%
======== ======= ======= =======
</TABLE>
- - ---------------
*Fully-taxable equivalent based upon federal income tax structure applicable at
December 31, 1995.
The yield on the portfolio increased to 6.37% in 1995 compared to 6.03% in
1994 and 6.49% in 1993.
The most prominent change in the investment portfolio during 1995 was a
result of the acquisition of CIVISTA which added approximately $240.0 million
dollars of investment securities. As a result, security purchasing during 1995
was reduced and proceeds from maturing securities were used to repay borrowings
and fund loan growth. Obligations of U.S. Government agencies, mortgage-backed
securities, collateral mortgage obligations (CMOs) and asset-backed securities
provided increased yields and accounted for approximately 76.9% of the
investment portfolio compared to 64.4% and 67.0% in 1994 and 1993 respectively.
During 1995 the use of various financial instruments such as derivatives
received considerable attention. While CMOs are technically considered
derivatives, the Corporation does not have any of the more risky forms of
financial derivatives, such as swaps and caps, as hedges or investments.
LOANS
Total loans outstanding at December 31, 1995 increased 2.2% compared to one
year ago or $3,770.4 million compared to $3,687.9 million. A breakdown by
category is presented below, along with a maturity summary of commercial,
financial, and agricultural loans.
20
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............ $ 588,864 467,428 430,118 423,170 403,238 408,403
Installments to
individuals............. 777,990 800,441 632,354 556,256 559,601 567,099
Real estate............... 2,223,561 2,261,283 2,016,491 2,031,969 2,014,305 1,921,412
Lease financing........... 179,951 158,737 56,903 19,399 17,213 14,038
---------- ---------- ---------- ---------- ---------- ----------
Total loans............. 3,770,366 3,687,889 3,135,866 3,030,794 2,994,357 2,910,952
Less allowance for
possible loan losses.... 46,840 35,834 35,030 31,592 26,162 24,840
---------- ---------- ---------- ---------- ---------- ----------
Net loans............... $3,723,526 $3,652,055 $3,100,836 $2,999,202 $2,968,195 $2,886,112
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
COMMERCIAL, FINANCIAL AND
AGRICULTURAL
-------------------------
<S> <C>
Due in one year or less......................................................... $ 335,327
Due after one but within five years............................................. 177,173
Due after five years............................................................ 76,364
----------
Total....................................................................... $ 588,864
=========================
Loans due after one year with interest at a predetermined fixed rate............ $ 139,853
Loans due after one year with interest at a floating rate....................... 113,684
----------
Total....................................................................... $ 253,537
=========================
</TABLE>
Real estate loans at December 31, 1995 totaled $2,223.6 million or 59.0% of
total loans outstanding compared to 61.3% one year ago. Residential loans (1-4
family dwellings) totaled $1,350.6 million, home equity loans $145.5 million,
construction loans $87.5 million and commercial real estate loans $640.0
million.
Commercial real estate loans include both commercial loans where real
estate has been taken as collateral as well as loans for commercial real estate.
The majority of commercial real estate loans are to owner occupants where cash
flow to service debt is derived from the occupying business cash flow instead of
normal building rents. These loans are generally a part of an overall
relationship with existing customers primarily within northeast Ohio.
Consumer loans or loans to individuals decreased 2.8% compared to one year
ago and accounted for 20.6% of total loans compared to 21.7% in 1994. Lease
financing increased from $158.7 million in 1994 to $180.0 million at December
31, 1995 and comprised 4.8% of total loans outstanding. Auto leasing totaled
$98.6 million with equipment leasing totaling $81.3 million at December 31,
1995.
There is no concentration of loans in any particular industry or group of
industries. Most of the Corporation's business activity is with customers
located within the state of Ohio.
ASSET QUALITY
Making a loan to earn an interest spread inherently includes taking the
risk of not getting repaid. Successful management of credit risk requires making
good underwriting decisions, carefully administering the loan portfolio and
diligently collecting delinquent accounts.
The Corporation's Credit Policy Division manages credit risk by
establishing common credit policies for its subsidiary banks, participating in
approval of their largest loans, conducting reviews of their loan portfolios,
providing them with centralized consumer underwriting, collections and loan
operations services, and overseeing their loan workouts.
The Corporation's objective is to minimize losses from its commercial
lending activities and to maintain consumer losses at acceptable levels that are
stable and consistent with growth and profitability objectives.
21
<PAGE> 23
Effective December 31, 1995, the Corporation adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan,"
and Statement No. 118, an amendment of Statement No. 114, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." These
statements prescribe 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 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.
NON-PERFORMING ASSETS
Non-performing assets consist of:
- NON-ACCRUAL LOANS on which interest is no longer accrued because its
collection is doubtful.
- RESTRUCTURED LOANS on which, due to deterioration in the borrower's
financial condition, the original terms have been modified in favor of
the borrower or either principal or interest has been forgiven.
- OTHER REAL ESTATE (OREO) acquired through foreclosure in satisfaction of
a loan.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Impaired Loans:
Non-accrual................................. $ 7,373 10,517 N/A N/A N/A N/A
Restructured................................ 1,548 2,026 N/A N/A N/A N/A
------- ------ ------ ------ ------ ------
Total impaired loans...................... 8,921 12,543 N/A N/A N/A N/A
Other Loans:
Non-accrual................................. 3,918 3,108 12,040 21,903 23,324 31,357
Restructured................................ -- -- 6,176 3,972 7,049 13,280
------- ------ ------ ------ ------ ------
Total Other Non-performing loans.......... 3,918 3,108 18,216 25,875 30,373 44,637
------- ------ ------ ------ ------ ------
Total non-performing loans................ 12,839 15,651 18,216 25,875 30,373 44,637
------- ------ ------ ------ ------ ------
Other real estate owned....................... 1,059 10,393 8,637 18,750 17,305 10,144
------- ------ ------ ------ ------ ------
Total non-performing assets................. $13,898 26,044 26,853 44,625 47,678 54,781
======== ====== ====== ====== ====== ======
Loans past due 90 days or more accruing
interest.................................... $ 7,252 3,569 4,122 6,593 5,843 8,304
======== ====== ====== ====== ====== ======
Total non-performing assets as a percent of
total loans................................. 0.37% 0.70% 0.85% 1.46% 1.61% 1.88%
======== ====== ====== ====== ====== ======
</TABLE>
- - ---------------
N/A = Not Available
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, agricultural, construction, and commercial real estate
loans meet the definition of impaired loans under Statement No.'s 114 and 118.
Impaired loans as defined by Statements 114 and 118 exclude certain consumer
loans, residential real estate loans, and leases classified as non-accrual.
Consumer installment loans are charged off when they reach 120 days past due.
Credit card loans are charged off when they reach 180 days past due. When any
other loan becomes 90 days past due, it is placed on non-accrual status unless
it is well secured and in the process of collection. Any losses are charged
against the allowance for possible loan losses as soon as they are identified.
Non-performing assets at December 31, 1995 totaled $13.9 million, down from
$26.0 million in 1994 and $26.9 million in 1993. As a percentage of total loans
outstanding plus OREO, non-performing assets were .37% at year-end 1995 compared
to 0.70% in 1994 and 0.85% in 1993. The average balances of impaired loans for
the years ended December 31, 1995 and 1994 were $10.7 million and $11.2 million,
respectively.
For the year ended December 31, 1995, impaired assets earned $55,400 in
interest income. Had they not been impaired, they would have earned $362,700.
For the same period, total non-performing loans earned
22
<PAGE> 24
$365,000 in interest income. Had they paid in accordance with the payment terms
in force prior to being considered impaired, on non-accrual status, or
restructured, they would have earned $650,000.
In addition to non-performing loans and loans 90 days past due and still
accruing interest, Management identified potential problem loans totaling $26.1
million at December 31, 1995. These loans are closely monitored for any further
deterioration in the borrowers' financial condition and for the borrowers'
ability to comply with terms of the loans.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation maintains what Management believes is an adequate allowance
for possible loan losses. The Parent Company and the subsidiary banks regularly
analyze the adequacy of their allowances through ongoing reviews of trends in
risk ratings, delinquencies, non-performing assets, charge-offs, economic
conditions, and changes in the composition of the loan portfolio.
At year-end the Corporation increased its allowance for possible loan
losses for the following reasons. The mix of the loan portfolio, reflective of
several S&L acquisitions, is becoming less thrift-like and more like a
commercial bank as a result of a growth in the commercial, installment and
credit card segments. This growth has been significant and is expected to
continue. In contrast, residential mortgage holdings continue to shrink as the
newly formed FirstMerit Mortgage Company sells its production and the existing
portfolio runs off or is sold. The resulting risk profile (i.e., one with a
lower percentage of secured single-family mortgage loans) requires a more
substantial allowance. Also, while indicative of the Corporation's marketplace
successes, loan growth of the magnitude the Corporation has experienced in the
last two years is sometimes followed by increases in delinquencies, problem
loans, and losses. At year-end, delinquencies in the consumer portfolio had
increased compared to historical levels, though they were still well within
industry norms and losses remained low. Management felt it was prudent to
increase the allowance at year end to ensure its adequacy for changes that have
occurred and will continue to occur in the loan portfolio.
At December 31, 1995, the allowance was $46.8 million or 1.24% of loans
outstanding compared to $35.8 million or .97% in 1994 and $35.0 million or 1.12%
in 1993. The allowance equaled 364.8% of non-performing loans at December 31,
1995 compared to 229.0% in 1994. The allowance for possible loan losses related
to impaired loans at December 31, 1995 and December 31, 1994 totaled $675,914
and $1.2 million, respectively. Impaired loans of $3.9 million and $3.1 million
were not subject to a related allowance for possible loan losses at December 31,
1995 and December 31, 1994, respectively, because of the net realizable value of
loan collateral, guarantees and other factors.
Net charge-offs were $8.8 million in 1995 compared to $3.8 million in 1994
and $4.6 million in 1993. As a percentage of average loans outstanding, net
charge-offs equaled .23% in 1995, .11% in 1994 and .15% in 1993. Losses are
charged against the allowances as soon as they are identified.
23
<PAGE> 25
A six year summary of loan losses follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance for possible loan losses at
beginning of year........................ $ 35,834 35,030 31,592 26,162 24,840 23,537
Loans charged off:
Commercial, financial and agricultural... 3,145 1,479 1,686 5,887 3,553 6,276
Installment to individuals............... 8,578 1,761 1,809 7,950 7,197 8,362
Real estate.............................. 883 4,435 5,104 3,625 3,539 675
Lease financing.......................... 319 20 28 229 230 153
---------- --------- --------- --------- --------- ---------
Total.................................. 12,925 7,695 8,627 17,691 14,519 15,466
---------- --------- --------- --------- --------- ---------
Recoveries:
Commercial, financial and agricultural... 569 719 1,334 1,068 711 1,062
Installment to individuals............... 3,382 3,029 2,548 2,518 2,250 2,165
Real estate.............................. 129 106 95 528 110 90
Lease financing.......................... 88 21 32 42 20 56
---------- --------- --------- --------- --------- ---------
Total.................................. 4,168 3,875 4,009 4,156 3,091 3,373
---------- --------- --------- --------- --------- ---------
Net charge-offs............................ 8,757 3,820 4,618 13,535 11,428 12,093
---------- --------- --------- --------- --------- ---------
Provision for possible loan losses......... 19,763 4,624 8,056 18,965 12,750 13,396
---------- --------- --------- --------- --------- ---------
Allowance for possible loan losses at end
of year.................................. $ 46,840 35,834 35,030 31,592 26,162 24,840
========= ======== ======== ======== ======== ========
Average loans outstanding.................. $3,818,486 3,350,162 3,104,406 3,000,216 2,930,129 2,890,548
========= ======== ======== ======== ======== ========
Ratio to average loans:
Net charge-offs.......................... 0.23% 0.11% 0.15% 0.45% 0.39% 0.42%
Provision for possible loan losses....... 0.52% 0.14% 0.26% 0.63% 0.44% 0.46%
Allowance for possible loan losses at end
of year................................ 1.23% 1.07% 1.13% 1.05% 0.89% 0.86%
========= ======== ======== ======== ======== ========
Loans outstanding at end of year........... $3,770,366 3,687,889 3,135,866 3,030,794 2,994,357 2,910,952
========= ======== ======== ======== ======== ========
Allowance for possible loan losses:
As a percent of loans outstanding at end
of year................................ 1.24% 0.97% 1.12% 1.04% 0.87% 0.85%
As a multiple of net charge-offs......... 5.35 9.38 7.59 2.33 2.29 2.05
========= ======== ======== ======== ======== ========
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------
CATEGORY OF LOANS
AS PERCENT OF
AMOUNT OUTSTANDINGS
------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial, and agricultural............... $13,570 29.0%
Real estate........................................... 18,690 39.9%
Installment........................................... 13,360 28.5%
Lease financing....................................... 1,220 2.6%
------- ------
$46,840 100.0%
======= ===============
</TABLE>
DEPOSITS
Average deposits in 1995 increased less than one percent compared to 1994
as market interest rates remained relatively low overall, but did increase from
the levels reached in the first half of 1994 that were the lowest in over 30
years. Total deposits averaged $4,449.1 million in 1995 compared to $4,446.0
million and $4,383.4 million in 1994 and 1993, respectively.
As market interest rates increased during 1995, the mix of deposits shifted
toward certificates of deposits and away from the more liquid types of deposit
accounts. The average yield on certificates and other time deposits was 5.47% in
1995, 4.26% in 1994 and 4.28% in 1993.
24
<PAGE> 26
Certificates and other time deposits accounted for 40.1% of average
deposits in 1995 compared to 36.2% in 1994. Savings equaled 34.0% and 38.5% in
1995 and 1994, respectively, and demand deposits, both interest and non-interest
bearing, were 25.9% and 25.4%, respectively.
Savings deposits decreased 11.5% compared to one year ago and represent
34.0% of total deposits. Interest bearing demand deposits decreased 7.5%,
totaling 9.6% of deposits as the average rate dropped to 2.16%. Non-interest
bearing demand deposits totaled $725.3 million, an increase of 8.8% and
represented 16.3% of total deposits.
The average cost of deposits was up 51 basis points compared to one year
ago, or 3.26% compared to 2.75%.
Based upon prior interest rate cycles, deposits are expected to continue to
shift into certificates of deposits as interest rates rise and customers seek to
obtain a premium for investing in longer term certificates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
-------------------- ------------------- -------------------
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........ $ 725,287 -- 666,469 -- 642,830 --
Demand deposits -- interest
bearing..................... 426,608 2.16% 460,994 2.26% 434,773 2.43%
Savings deposits.............. 1,514,374 2.54% 1,710,909 2.54% 1,664,407 2.79%
Certificates and other time
deposits.................... 1,782,817 5.47% 1,607,616 4.26% 1,641,364 4.28%
---------- --------- ---------
$4,449,086 4,445,988 4,383,374
========= ======== ========
</TABLE>
The following table summarizes the certificates and other time deposits in
amounts of $100,000 or more as of December 31, 1995, by time remaining until
maturity.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Maturing in:
Under 3 months.................................................................... $110,878
3 to 6 months..................................................................... 37,387
6 to 12 months.................................................................... 26,514
Over 12 months.................................................................... 55,650
--------
$230,429
========
</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 to 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.
25
<PAGE> 27
At December 31, 1995 the Corporation was in a moderate asset-sensitive
position as illustrated in the following table:
<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:
Loans and leases................. $ 820,146 206,819 121,563 230,267 437,294 1,954,277 3,770,366
Investment securities............ 189,490 33,126 35,983 125,465 159,549 859,446 1,403,059
Federal funds sold............... 12,575 -- -- -- -- -- 12,575
---------- -------- -------- ------- ------- --------- ---------
Total Interest Earning Assets...... $1,022,211 239,945 157,546 355,732 596,843 2,813,723 5,186,000
---------- -------- -------- ------- ------- --------- ---------
Interest-Bearing Liabilities:
Demand -- Interest bearing....... $ 6,510 6,310 6,310 18,930 37,860 356,489 432,409
Savings.......................... 13,297 13,297 262,027 39,891 79,782 1,046,582 1,454,876
Certificates and other time
deposits....................... 336,623 115,196 115,496 316,060 388,284 532,033 1,803,692
Securities sold under agreement
to repurchase and other
borrowings..................... 372,258 -- 1,100 25,000 200 88,400 486,958
---------- -------- -------- ------- ------- --------- ---------
Total Interest Bearing
Liabilities...................... $ 728,688 134,803 384,933 399,881 506,126 2,023,504 4,177,935
---------- -------- -------- ------- ------- --------- ---------
Total GAP.......................... $ 293,523 105,142 (227,387) (44,149) 90,717 790,219 1,008,065
========== ========= ========= ======== ======== ========= =========
Cumulative GAP..................... $ 293,523 $398,665 171,278 127,129 217,846 1,008,065
========== ========= ========= ======== ======== =========
</TABLE>
CAPITAL RESOURCES
Shareholders' equity at December 31, 1995 totaled $542.8 million compared
to $523.3 million at December 31, 1994, an increase of 3.7%.
The following table reflects the various measures of capital:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total equity............................ $542,881 9.70% $523,319 9.14% $500,121 9.66%
Common equity........................... 542,881 9.70% 523,319 9.14% 500,121 9.66%
Tangible common equity(a)............... 536,934 9.60% 504,337 8.84% 481,054 9.32%
Tier 1 capital (b)...................... 538,032 14.53% 537,999 15.32% 489,811 16.18%
Total risk-based capital (c)............ 584,872 15.80% 573,833 16.34% 524,841 17.34%
Leverage (d)............................ 538,032 9.66% 537,999 9.53% 489,811 9.43%
</TABLE>
- - ---------------
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.
The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA") set
capital guidelines for a financial institution to be considered
"well-capitalized." These guidelines require a risk-based capital ratio of 10%,
a Tier I capital ratio of 6% and a leverage ratio of 5%. At December 31, 1995,
the Corporation's risk-based capital equaled 15.80% of risk -adjusted assets,
its Tier I capital ratio equaled 14.53% and its leverage ratio equaled 9.66%.
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.
26
<PAGE> 28
During 1995, the Corporation's Directors increased the quarterly cash
dividend, marking the fourteenth consecutive year of annual increases since the
Corporation's formation in 1981. The cash dividend of $.27 paid has an indicated
annual rate of $1.08 per share. Over the past five years the dividend has
increased at an annual rate of approximately 8%.
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 1995 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 as well as a bank
note program implemented during 1995 that made $75 million available to fund
loan demand.
The liquidity needs of the Parent Company, primarily cash dividends and
other corporate purposes, are met through cash, short-term investments and
dividends from banking subsidiaries.
Management is not aware of any trend or event, other than noted above,
which 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 I 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 I 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 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,
1995, 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.
27
<PAGE> 29
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, 1995.
28
<PAGE> 30
CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investment securities, market value $1,403,059 and $1,582,387,
respectively.................................................... $1,403,059 1,610,360
Federal funds sold................................................. 12,575 13,700
Loans.............................................................. 3,770,366 3,687,889
Less allowance for possible loan losses............................ 46,840 35,834
---------- -----------
Net loans..................................................... 3,723,526 3,652,055
---------- -----------
Total earning assets.......................................... 5,139,160 5,276,115
---------- -----------
Cash and due from banks............................................ 287,671 238,073
Premises and equipment, net........................................ 94,158 83,223
Accrued interest receivable and other assets....................... 75,532 125,162
---------- -----------
$5,596,521 5,722,573
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand -- non-interest bearing.................................. $ 810,948 733,171
Demand--interest bearing........................................ 432,409 475,099
Savings......................................................... 1,454,876 1,633,189
Certificates and other time deposits............................ 1,803,692 1,699,998
---------- -----------
Total deposits.................................................. 4,501,925 4,541,457
---------- -----------
Securities sold under agreements to repurchase and other
borrowings...................................................... 486,958 612,624
Accrued taxes, expenses, and other liabilities..................... 64,757 45,173
---------- -----------
Total liabilities............................................... 5,053,640 5,199,254
---------- -----------
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 33,614,487 and 33,325,344
shares, respectively......................................... 103,861 100,576
Treasury stock, 116,739 and 22,751 shares, respectively......... (2,963) (694)
Net unrealized holding gains (losses) on available for sale
securities..................................................... (1,292) (23,205)
Retained earnings............................................... 443,275 446,642
---------- -----------
Total shareholders' equity...................................... 542,881 523,319
---------- -----------
$5,596,521 5,722,573
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $325,763 274,498 263,997
Interest and dividends on investment securities:
Taxable............................................... 82,836 86,941 85,872
Exempt from federal income taxes...................... 6,347 7,411 7,804
-------- -------- --------
89,183 94,352 93,676
Interest on federal funds sold........................... 1,681 2,168 3,535
-------- -------- --------
Total interest income................................. 416,627 371,018 361,208
-------- -------- --------
Interest expense:
Interest on deposits:
Demand -- interest bearing............................ 9,202 10,429 10,567
Savings............................................... 38,438 43,372 46,471
Certificates and other time deposits.................. 97,518 68,528 70,210
Interest on securities sold under agreements to
repurchase and other borrowings....................... 35,775 17,852 7,901
-------- -------- --------
Total interest expense................................ 180,933 140,181 135,149
-------- -------- --------
Net interest income................................... 235,694 230,837 226,059
Provision for possible loan losses......................... 19,763 4,624 8,056
-------- -------- --------
Net interest income after provision for possible loan
losses.............................................. 215,931 226,213 218,003
-------- -------- --------
Other income:
Trust department......................................... 10,712 13,423 9,907
Service charges on deposits.............................. 20,622 20,482 21,483
Credit card fees......................................... 9,372 8,254 8,017
Investment securities gains (losses), net................ 539 653 2,411
Other operating income................................... 27,272 27,844 30,091
-------- -------- --------
Total other income.................................... 68,517 70,656 71,909
-------- -------- --------
Other expenses:
Salaries, wages, pension and employee benefits........... 107,735 98,749 94,305
Net occupancy expense.................................... 16,598 13,446 12,361
Equipment expense........................................ 13,417 12,231 13,031
Other operating expenses................................. 90,029 68,984 68,248
-------- -------- --------
Total other expenses.................................. 227,779 193,410 187,945
-------- -------- --------
Income before federal income taxes and extraordinary
item................................................ 56,669 103,459 101,967
Federal income taxes....................................... 30,950 32,110 33,335
-------- -------- --------
Income before extraordinary item...................... 25,719 71,349 68,632
-------- -------- --------
Extraordinary item -- gain on disposition of assets after
business combination (net of income tax effect of
$3,015).................................................. 5,599 -- --
-------- -------- --------
Net income............................................ $ 31,318 71,349 68,632
======== ======== ========
Weighted average number of common shares outstanding....... 33,454 33,289 33,259
======== ======== ========
Per share data based on average number of shares
outstanding:
Income before extraordinary item...................... $ 0.77 2.14 2.06
Extraordinary item.................................... 0.17 -- --
-------- -------- --------
Net income per share....................................... $ 0.94 2.14 2.06
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------------------------------------
NET UNREALIZED
HOLDING LOSSES TOTAL
COMMON TREASURY AVAILABLE-FOR- RETAINED SHAREHOLDERS'
STOCK SURPLUS STOCK SALE SECURITIES EARNINGS EQUITY
-------- ------- -------- --------------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992...................... $ 54,851 40,371 (601) -- 360,723 455,344
Net income................ -- -- -- -- 68,632 68,632
Cash dividends ($.87 per
share)................. -- -- -- -- (23,486 ) (23,486)
Cash dividends on
CIVISTA................ -- -- -- -- (1,740 ) (1,740)
Stock options exercised... 1,371 -- -- -- -- 1,371
Elimination of par
value.................. 40,371 (40,371) -- -- -- --
-------- ------- -------- --------------- -------- -------------
Balance at December 31,
1993...................... 96,593 -- (601) -- 404,129 500,121
Net income................ -- -- -- -- 71,349 71,349
Cash dividends ($.98 per
share)................. -- -- -- -- (28,836 ) (28,836)
Stock options exercised... 3,983 -- -- -- -- 3,983
Treasury shares
purchased.............. -- -- (93) -- -- (93)
Market adjustment
investment
securities............. -- -- -- (23,205) -- (23,205)
-------- ------- -------- --------------- -------- -------------
Balance at December 31,
1994...................... 100,576 -- (694) (23,205) 446,642 523,319
Net income................ -- -- -- -- 31,318 31,318
Cash dividends ($1.02 per
share)................. -- -- -- -- (35,299 ) (35,299)
Stock options exercised... 3,285 -- -- -- -- 3,285
Treasury shares
purchased.............. -- -- (2,269) -- -- (2,269)
Market adjustment
investment
securities............. -- -- -- 21,913 -- 21,913
Acquisition adjustment of
fiscal year............ -- -- -- -- 614 614
-------- ------- -------- --------------- -------- -------------
Balance at December 31,
1995...................... $103,861 -- (2,963) ( 1,292) 443,275 542,881
======== ======= ======== ============ ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 31,318 71,349 68,632
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 19,763 4,624 8,056
Provision for depreciation and amortization............... 8,862 8,353 7,542
Amortization of investment securities premiums, net....... 2,592 3,186 4,769
Amortization of income for lease financing................ (8,586) (6,810) (2,620)
Gains on sales of investment securities, net.............. (539) (653) (2,411)
Extraordinary gain on dispositions........................ (5,599) -- --
Deferred federal income taxes............................. 2,305 11,172 (336)
Decrease (increase) in interest receivable................ 2,356 (5,002) 2,804
Increase (decrease) in interest payable................... 5,913 3,698 (1,371)
Amortization of values ascribed to acquired intangibles... 3,153 3,878 3,485
Other increases (decreases)............................... 41,282 (22,043) 2,590
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 102,820 71,752 91,140
--------- --------- ---------
INVESTING ACTIVITIES
Dispositions of investment securities:
Available-for-sale -- sales............................... 98,688 56,673 83,251
Held-to-maturity -- maturities............................ 432,729 389,234 --
Available-for-sale -- maturities.......................... 200,895 184,294 755,316
Purchases of investment securities held-to-maturity......... (55,507) (263,518) --
Purchases of investment securities available-for-sale....... (437,840) (435,630) (911,641)
Net (increase) decrease in federal funds sold............... 1,125 60,888 46,785
Net increase in loans and leases............................ (82,648) (549,033) (107,069)
Purchases of premises and equipment......................... (27,949) (17,255) (11,419)
Sales of premises and equipment............................. 16,766 3,234 1,717
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 146,259 (571,113) (143,060)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in demand, NOW and savings
deposits.................................................. (143,226) (21,539) 191,696
Net increase (decrease) in time deposits.................... 103,694 133,315 (127,838)
Net increase in securities sold under repurchase agreements
and other borrowings...................................... (125,666) 412,726 24,369
Cash dividends.............................................. (35,299) (28,836) (25,226)
Purchase of treasury shares................................. (2,269) (93) (601)
Proceeds from exercise of stock options..................... 3,285 3,983 1,371
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ (199,481) 499,556 63,771
--------- --------- ---------
Increase in cash and cash equivalents....................... 49,598 195 11,851
Cash and cash equivalents at beginning of year.............. 238,073 237,878 226,027
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 287,671 238,073 237,878
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Amortized cost of the held-to-maturity portfolio transferred
to the available-for-sale portfolio....................... $ 578,624 -- --
Cash paid during the year for:
Interest, net of amount capitalized....................... $ 100,740 97,836 99,870
Income taxes.............................................. $ 22,099 31,100 34,765
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On December 15, 1994, the shareholders approved a change in the name of the
Corporation from First Bancorporation of Ohio to FirstMerit Corporation. 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. 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:
Citizens Investment Corporation, Citizens National Bank, Citizens Savings
Corporation of Stark County, EST National Bank, First National Bank of
Ohio, FirstMerit Bank, FSB, FirstMerit Community Development Corporation,
FirstMerit Credit Life Insurance Company, FirstMerit Trust Company, N.A.,
Old Phoenix National Bank of Medina, Peoples Bank, N.A., and Peoples
National Bank. All significant intercompany balances and transactions have
been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from those
estimates.
(c) Investment Securities
Debt and equity securities are 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 as 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 December 31, 1995, the Corporation designated the entire
investment portfolio as available-for-sale. Classification as
available-for-sale allows the Corporation to sell securities to fund
liquidity and manage the Corporation's interest rate risk.
Prior to December 31, 1995, the Corporation had designated a portion of
its investment portfolio as held-to-maturity. The Corporation does not
maintain a trading account.
(d) 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.
(e) 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.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(f) Loans
Impaired loans are loans for which, based on current information or
events, it is probable that the Corporation will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. Impaired loans are 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.
(g) 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.
(h) 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, deserves current recognition.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(m) 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.
(n) Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current reporting presentation.
2. ACQUISITIONS
On January 31, 1995, the Corporation acquired The CIVISTA Corporation, a
savings and loan holding company headquartered in Canton, Ohio ("CIVISTA"), in
exchange for approximately 6,513,119 shares of the Corporation's common stock.
The transaction was accounted for as a pooling of interests. As a result of
CIVISTA's fiscal year which ended September 30, the Corporation made an
acquisition adjustment to shareholders' equity of $614, which represented
CIVISTA's net income for the three month period ended December 31, 1994. The
accompanying consolidated financial statements for all periods have been
restated account for the acquisition.
Details of the results of operations of the previously separate
corporations including CIVISTA operating results for its fiscal years ended
September 30 are as follows:
<TABLE>
<CAPTION>
FIRSTMERIT
CORPORATION CIVISTA COMBINED
----------- ------- --------
<S> <C> <C> <C>
Year ended December 31, 1994
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
</TABLE>
The Corporation incurred a one-time charge of approximately $16.2 million
($.48 per share) in the first quarter of 1995 related to the loss of certain tax
benefits as a result of converting CIVISTA's thrift operations to national bank
operations as well as other expenses related to the merger.
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.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
3. INVESTMENT SECURITIES
Investment securities are composed of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1995
Available for sale:
U.S. Treasury securities and U.S.
Government agency obligations... $ 870,412 3,852 9,297 864,967 864,967
Obligations of state and political
subdivisions.................... 108,435 914 507 108,842 108,842
Mortgage-backed securities........ 329,099 4,163 1,706 331,556 331,556
Other securities.................. 97,101 1,152 559 97,694 97,694
---------- ---------- ---------- --------- ---------
$1,405,047 10,081 12,069 1,403,059 1,403,059
========= ========= ========= ======== ========
December 31, 1994
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
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>
The amortized cost and market value of investment securities including
mortgage-backed securities at December 31, 1995, 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. Effective December 31, 1995, the Corporation transferred
all held-to-maturity invest-
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
ments to available-for-sale. As a result of this transfer, unrealized holding
losses on available-for-sale securities was reduced by the after-tax amount of
$1.2 million.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
AVAILABLE FOR SALE
------------------------
AMORTIZED MARKET
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less.............................................. $ 149,415 149,623
Due after one year through five years................................ 520,515 522,709
Due after five years through ten years............................... 136,661 136,018
Due after ten years.................................................. 598,456 594,709
---------- ---------
$1,405,047 1,403,059
========= ========
</TABLE>
Proceeds from sales of investment securities during the years December 31,
1995 and 1994 were $98,688 and $56,673, respectively. Gross gains of $1,384 and
$825 and gross losses of $845 and $172 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
$741,185 and $883,320 at December 31, 1995 and 1994, respectively.
4. LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ---------
<S> <C> <C>
Commercial, financial and agricultural............................... $ 588,864 467,428
Loans to individuals, net of unearned income of, $1,607 and $2,617
respectively....................................................... 777,990 800,441
Real estate.......................................................... 2,223,561 2,261,283
Lease financing...................................................... 179,951 158,737
---------- ---------
$3,770,366 3,687,889
========= ========
</TABLE>
At December 31, 1995 and 1994, the Corporation serviced loans for others
aggregating $542,922 and $460,640, respectively.
The Corporation grants loans principally to customers located within the
State of Ohio.
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Impaired Loans............................................................. $8,921 12,543
Allowance for Possible Loan Losses......................................... $ 676 1,200
Interest Recognized........................................................ $ 55 79
====== ======
</TABLE>
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
The Corporation makes loans to officers and directors on substantially the
the same terms and conditions as transactions with other parties. An analysis of
loan activity with related parties for the year ended December 31, 1995 is
summarized as follows:
<TABLE>
<S> <C>
Aggregate amount at beginning of year............................................. $46,311
Additions (deductions):
New loans....................................................................... 14,493
Repayments...................................................................... (9,446)
Changes in directors and their affiliations..................................... (17,185)
-------
Aggregate amount at end of year................................................... $34,173
=======
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year........................................ $35,834 35,030 31,592
Additions (deductions):
Provision for possible loan losses................................ 19,763 4,624 8,056
Loans charged off................................................. (12,925) (7,695) (8,628)
Recoveries on loans previously charged off........................ 4,168 3,875 4,010
------- ------ ------
Balance at end of year.............................................. $46,840 35,834 35,030
======= ====== ======
</TABLE>
6. RESTRICTIONS ON CASH AND DIVIDENDS
The average balance on deposit with the Federal Reserve Bank to satisfy
reserve requirements amounted to $20,473 during 1995. 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,
1995, cash and due from banks included $29,082 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 1996 are restricted by the regulatory agencies
principally to the total of 1996 net income plus $1,422, 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.
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
7. PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------- USEFUL
1995 1994 LIVES
-------- ------- ----------
<S> <C> <C> <C>
Land........................................................ $ 11,450 11,454 --
Buildings................................................... 82,012 79,131 10-50 yrs
Equipment................................................... 55,926 69,065 3-50 yrs
Leasehold improvements...................................... 13,346 13,276 1-40 yrs
-------- ------- ----------
162,734 172,926
Less accumulated depreciation and amortization.............. 68,576 89,703
-------- -------
$ 94,158 83,223
======== =======
</TABLE>
Amounts included in other expenses for depreciation and amortization
aggregated $8,862, $8,353 and $7,542 for the years ended December 31, 1995, 1994
and 1993, respectively.
At December 31, 1995, the Corporation was obligated for rental commitments
under noncancelable operating leases on branch offices and equipment as follows:
<TABLE>
<CAPTION>
YEARS
ENDING
DECEMBER LEASE
31, COMMITMENTS
- - ---------- -----------
<S> <C>
1996 $ 8,885
1997 8,272
1998 7,627
1999 6,939
2000 4,803
2001-2013 19,066
-----------
$55,592
============
</TABLE>
Rentals paid under noncancelable operating leases amounted to $9,574,
$7,325 and $6,085 in 1995, 1994 and 1993, respectively.
8. CERTIFICATES AND OTHER TIME DEPOSITS
The aggregate amounts of certificates and other time deposits of $100 and
over at December 31, 1995 and 1994 were $230,429 and $227,843, respectively.
Interest expense on these certificates and time deposits amounted to $14,360 in
1995, $9,406 in 1994, and $6,362 in 1993.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
At December 31, 1995 and 1994, securities sold under agreements to
repurchase totaled $336,083 and $467,393, respectively. The average balance of
securities sold under agreements to repurchase and other borrowings for the
years ended December 31, 1995 and 1994, amounted to $609,247 and $374,351,
respectively. In 1995, the weighted average annual interest rate amounted to
5.87%, compared to 4.77% in 1994. The maximum amount of these borrowings at any
month end amounted to $740,586 in 1995 and $622,435 in 1994.
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
At December 31, 1995, and 1994, the Corporation had $75,875 and $145,231,
respectively, of Federal Home Loan Bank advances. The 1995 balance includes:
$35,000 that have maturities within one year with interest rates of 5.80% to
6.36%; $34,650 with maturities over one year to five years with interest rates
of 4.65% to 6.15%; and $6,225 over five years with interest rates of 4.75% to
8.10%.
At December 31, 1995, the Corporation had $75,000 of Medium Term Notes
outstanding with maturity within one year at a rate of 5.95%.
10. FEDERAL INCOME TAXES
Federal income taxes are comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Taxes currently payable......................................... $31,660 20,938 33,671
Deferred expense (benefit)...................................... 2,305 11,172 (121)
Adjustment to deferred taxes as a result of the 1994 rate
increase...................................................... 0 0 (215)
------- ------ ------
$33,965 32,110 33,335
</TABLE>
Actual Federal income tax expense differs from expected Federal income tax
as shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory rate....................................................... 35% 35% 35%
Increase (decrease) in rate due to:
Interest income on tax-exempt securities and tax-free loans, net... -3.8% -3.0% -4.0%
Exercise of options at acquisition................................. -0.3% -3.0% 0.0%
Thrift loss reserve recapture...................................... 19.0% 2.0% 0.0%
Reduction to excess tax reserves................................... -0.4% -2.0% 0.0%
Merger Expenses at acquisition..................................... 1.4% 0.0% 0.0%
Other.............................................................. 1.1% 1.0% 1.0%
----- ----- -----
Effective tax rates.................................................. 52.0% 30.0% 32.0%
===== ===== =====
</TABLE>
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
For 1995, 1994 and 1993, the deferred income tax expense results from
temporary differences in the recognition of income and expense for Federal
income tax and financial reporting purposes. The sources and tax effect of these
temporary differences are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- ------ -----
<S> <C> <C> <C>
Loan loss provision............................................ $ (2,205) (254) (672)
Depreciation................................................... 375 (72) (50)
Deferred loan fees, net........................................ 1,487 261 (438)
Leasing........................................................ 8,442 9,638 1,150
FAS 106 postretirement benefits................................ (434) (755) (834)
FAS 87 pension expense......................................... (1,767) 491 389
FHLB Stock Dividends........................................... 771 (265) (250)
Severance Costs................................................ (1,315) 0 0
Valuation Reserves............................................. (526) (929) 0
Other.......................................................... (2,523) 3,057 584
-------- ------ -----
Total deferred income tax...................................... $ 2,305 11,172 (121)
======== ====== =====
</TABLE>
Principal components of the Corporation's net deferred tax
asset/(liability) are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Excess of book loan provision over tax loan provision................... $11,577 9,372
Excess of tax depreciation over book depreciation....................... (4,090) (3,715)
Leasing book basis income
over tax basis........................................................ (21,306) (12,864)
Deferred loan fees tax basis income over book basis..................... 1,561 3,048
Postretirement book basis expense over tax basis........................ 2,672 2,238
Pension book basis expense over tax basis............................... 1,799 32
FHLB stock book basis over tax basis.................................... (3,086) (2,315)
Security portfolio tax basis over book basis............................ 695 12,167
Severance costs book basis over tax basis............................... 1,315 0
Valuation reserves book basis over tax basis............................ 1,455 929
Other................................................................... 1,694 (829)
------- -------
Total net deferred tax asset/(liability)................................ ($5,714) 8,063
======= =======
</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.
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
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.
The following table sets forth the plans' funded status and amounts
recognized in the Corporation's consolidated financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $48,567, $44,114 and $45,207,
respectively........................................ ($54,780) (46,845) (48,675)
========== ========== ==========
Projected benefit obligation............................... (73,926) (64,788) (67,129)
Plan assets at fair value, primarily U.S. government
obligations, corporate bonds and investments in
equity funds........................................ 67,035 67,042 67,965
---------- ---------- ----------
Plan assets in excess of projected benefit obligation...... (6,891) 2,254 836
Unrecognized net gains..................................... 675 (3,223) (2,208)
Unrecognized prior service cost............................ 3,340 4,103 2,433
Remaining unrecognized net asset being amortized over
employees' average remaining service life................ (1,206) (832) (1,929)
---------- ---------- ----------
Prepaid (accrued) pension cost............................. ($ 4,082) 2,302 (868)
========== ========== ==========
Expected long-term rate of return on assets................ 9.00% 9.00% 9.00%
Weighted-average discount rate............................. 7.25% 8.25% 7.50%
Rate of increase in future compensation levels............. 4.75% 5.00% 5.00%
========== ========== ==========
</TABLE>
Net pension cost consists of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Service cost............................................... $ 3,290 3,729 3,090
Interest cost on projected benefit obligation.............. 5,175 4,902 4,575
Actual return on plan assets............................... (8,563) (963) 7,227)
Net total of other components.............................. 2,976 (4,347) 2,208
---------- ---------- ----------
Net periodic pension cost.................................. $ 2,878 3,321 2,646
========== ========== ==========
</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
$2,294, $1,874 and $1,740 for 1995, 1994 and 1993, 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.
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
The cost of postretirement benefits expected to be provided to current and
future retirees is accrued over those employees' service periods. Prior to 1993,
postretirement benefits were accounted for on a cash basis. In addition to
recognizing the cost of benefits for the current period, recognition is being
provided for the cost of benefits earned in prior service periods (the
transition obligation). The Corporation has elected to amortize the transition
obligation by charges to income over a twenty year period on a straight line
basis.
The following table sets forth the plan's status and amounts recognized in
the Corporation's consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................... ($15,691) (13,968)
Fully eligible actives........................... (5,628) (4,657)
Other actives.................................... (8,166) (6,574)
---------- ----------
Total accumulated postretirement benefit obligation... (29,485) (25,199)
Unrecognized prior net loss........................... 5,622 2,640
Unrecognized prior service costs...................... 647 --
Unrecognized transition obligation.................... 16,156 17,106
---------- ----------
Accrued postretirement benefit cost................... ($ 7,060) (5,453)
========== ==========
</TABLE>
Net postretirement benefit cost includes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Service cost.......................................... $ 811 786
Interest cost......................................... 2,107 1,892
Actual return on plan assets.......................... -- --
Amortization of transition obligation................. 950 950
Net of other amortization and deferrals............... -- 138
---------- ----------
Net periodic postretirement cost...................... $ 3,868 3,766
========== ==========
</TABLE>
The following actuarial assumptions effect the determination of these
amounts:
<TABLE>
<CAPTION>
PLAN YEAR JANUARY 1,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Expected long-term rate of return on assets........... N/A N/A
Weighted-average discount rate........................ 7.25% 8.25%
Medical trend rates:
Pre-65........................................... 13.3%-6.0% 13.8%-6.0%
Post-65.......................................... 12.5%-6.1% 13.0%-6.1%
</TABLE>
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Shown below is the impact of a 1% increase in the medical trend rates
(i.e., pre-65, 14.3% for 1995 grading down to 7.0% in 2002; post-65, 13.0%
grading down to 7.1% in 2027). This information is required disclosure under
SFAS No. 106.
<TABLE>
<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................... $ 2,703 2,816 4.2%
Accumulated postretirement benefit obligation
for health care benefits................... $ 26,653 28,145 5.6%
</TABLE>
13. STOCK OPTIONS
The 1992 Stock Option Program provides incentive and non-qualified stock
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 Option
Plan and these options are 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
the Compensation Committee of the Board and approved by the non-employee
directors of the Board. Options are cancelable within defined periods of time
based upon the reason for termination of employment.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument. The statement does,
however, allow an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees." The Corporation anticipates continued use of APB No. 25 accounting
upon implementation of Statement No. 123 for its fiscal year ended December 31,
1996.
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
A summary of stock option activity for the years ended December 31, 1995,
1994 and 1993 follows:
<TABLE>
<CAPTION>
SHARES
------------------------- RANGE OF
AVAILABLE OPTION PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ---------- --------------
<S> <C> <C> <C>
Balance
December 31, 1992.............................. 1,117,329 793,644 $ 4.32 - 19.13
Add'l shares Reserved....................... 551,360 0
Canceled.................................... (26,879 ) (1,400) 4.32 - 14.32
Exercised................................... 0 (88,749) 4.32 - 24.13
Granted..................................... (136,250 ) 136,250 12.19 - 24.19
---------- ---------- --------------
Balance
December 31, 1993.............................. 1,505,560 839,745 4.32 - 24.19
Exercised................................... 0 (57,544) 4.32 - 24.13
Granted..................................... (73,590 ) 73,590 23.25 - 23.50
---------- ---------- --------------
Balance
December 31, 1994.............................. 1,431,970 855,791 $ 4.32 - 24.19
Canceled.................................... (495,190 ) 0
Exercised................................... 0 (420,883) $ 4.32 - 24.13
Granted..................................... (118,250 ) 118,250 22.50 - 26.25
---------- ---------- --------------
Balance
December 31, 1995.............................. 818,530 553,158 $ 4.32 - 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 12,752 and
12,762 shares issued in 1995 and 1994, respectively.
14. PARENT COMPANY
Condensed financial information of FirstMerit Corporation (Parent Company
only) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
CONDENSED BALANCE SHEETS 1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 4,866 4,145
Investment securities...................................... 1,036 11,110
Loans to subsidiaries...................................... 104,017 56,063
Investment in subsidiaries, at equity in underlying value
of their net assets...................................... 433,571 442,275
Goodwill................................................... 400 687
Other assets............................................... 10,363 24,052
---------- ----------
$554,253 538,332
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities.............................. $ 11,372 15,013
Shareholders' equity....................................... 542,881 523,319
---------- ----------
$554,253 538,332
========== ==========
</TABLE>
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries......................... $ 87,400 44,916 58,816
Other income............................................... 37,069 23,423 20,567
---------- ---------- ----------
124,469 68,339 79,383
Interest and other expenses................................ 59,652 29,988 26,575
---------- ---------- ----------
Income before federal income tax benefit and equity in
undistributed income of subsidiaries..................... 64,817 38,351 52,808
Federal income tax (benefit)............................... 5,215 (4,103) (1,903)
---------- ---------- ----------
59,602 42,454 54,711
Equity in undistributed income (loss) of subsidiaries,
including extra-ordinary gain in 1995 of $5,599.......... (28,284) 28,895 13,921
---------- ---------- ----------
Net income................................................. $ 31,318 71,349 68,632
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income................................................. $ 31,318 71,349 68,632
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed income of subsidiaries............. 28,284 (28,895) (13,921)
Provision for loan losses.................................. 1,100 -- --
Other...................................................... 12,190 (11,374) 6,515
---------- ---------- ----------
Net cash provided by operating activities.................. 72,892 31,080 61,226
---------- ---------- ----------
Investing activities:
Proceeds from maturities of investment securities.......... 10,262 3,544 428
Loans to subsidiaries...................................... (47,954) (5,497) (22,352)
Payments for investments in and advances to subsidiaries... -- (11,000) --
Repayments for investments in/advances to subsidiaries..... -- 1,171 411
Purchases of investment securities......................... (196) (993) (6,045)
---------- ---------- ----------
Net cash used by investing activities...................... (37,888) (12,775) (27,558)
---------- ---------- ----------
Financing activities:
Cash dividends............................................. (35,299) (28,836) (25,226)
Proceeds from exercise of stock options.................... 3,285 3,890 1,371
Purchase of treasury shares................................ (2,269) (93) (601)
---------- ---------- ----------
Net cash used by financing activities...................... (34,283) (25,039) (24,456)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....... 721 (6,734) 9,212
Cash and cash equivalents at beginning of year............. 4,145 10,879 1,667
---------- ---------- ----------
Cash and cash equivalents at end of year................... $ 4,866 4,145 10,879
========== ========== ==========
</TABLE>
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Disclosures of fair value information about certain financial instruments,
whether or not recognized in the consolidated balance sheets are provided as
follows. Instruments for which quoted market prices are not available are valued
based on estimates using present value or other valuation techniques whose
results are
46
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
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 non-financial
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 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.
47
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
The estimated fair values of the Corporation's financial instruments based
on the assumptions described above are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1994
------------------------ -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities...................... $1,403,059 1,403,059 1,610,360 1,582,387
Federal funds sold......................... 12,575 12,575 13,700 13,700
Net loans.................................. 3,723,526 3,704,374 3,652,055 3,552,350
Cash and due from banks.................... 287,671 287,671 238,073 238,073
Accrued interest receivable................ 35,584 35,584 38,001 38,001
Financial liabilities:
Deposits................................... 4,501,925 4,514,823 4,541,457 4,506,477
Securities sold under agreements to
repurchase and other borrowings......... 486,958 486,809 612,624 605,418
Accrued interest payable................... 16,252 16,252 10,321 10,321
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.
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 non-performance
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
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.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- -------
<S> <C> <C>
Commitments to extend credit................................. $1,015,723 943,919
========= =======
Standby letters of credit and financial guarantees written... $ 75,898 52,357
========= =======
Loans sold with recourse..................................... $ 1,702 16,356
========= =======
</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
48
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
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 $35,427 and $20,842 at
December 31, 1995 and 1994, respectively, the remaining guarantees extend in
varying amounts through 2020. 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. EXTRAORDINARY GAIN AND UNUSUAL CHARGES
During the fourth quarter, the Corporation recognized an extraordinary gain
of $5,599, net of taxes of $3,015, from the sale of several apartment complexes
formerly owned by a CIVISTA subsidiary.
Other unusual charges included the following items: a) fees, expenses, and
lost tax benefits of $16,214 and $5,025 in 1995 and 1994, respectively related
to the acquisitions of CIVISTA in 1995 and Great Northern Financial Corporation
in 1994; b) a 1995 expense of $2,199 related to an early retirement program; and
c) a reengineering plan that was implemented in 1995 to improve the overall
operating effectiveness of the Corporation, improve productivity within the
branch network and centralize operational functions previously handled by
affiliate banks. The charges associated with this plan totaled $17,838 on a
pre-tax basis, the components of which were as follows: $6,584 in adjustments to
the value of buildings, equipment and other assets; $2,875 increase to reserves;
$4,688 in severance costs; and $3,691 in consulting, sales training, and
merchandising expenses consistent with the launch of FirstMerit's new retail
emphasis. The severance charge relates to a management and employee staff
reduction of approximately 400 people. The amount of severance remaining to be
paid to employees terminated under the severance program was approximately $2
million at December 31, 1995.
18. 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 liabil 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 compensatory damages
against the Bank in the approximate amount of $7.3 million, plus punitive
damages, interest, costs, attorney's fees and other relief. Additional lawsuits
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.
49
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
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 not of appeal. In August, 1995, the appellate court
reversed the federal court's decision which had dismissed the lawsuit and then
remanded the case to the federal court for further proceedings. The Corporation
continues to believe that the Bank has meritorious defenses to all claims.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial and per share data for the years ended December 31,
1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- ------- ------- -------
IN THOUSANDS (EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total interest income......... 1995 $102,866 104,793 104,801 104,167
==== ======== ======= ======= =======
1994 $ 86,309 89,088 94,910 100,711
==== ======== ======= ======= =======
Net interest income........... 1995 $ 58,507 57,709 59,285 60,193
==== ======== ======= ======= =======
1994 $ 55,354 57,032 58,579 59,872
==== ======== ======= ======= =======
Provision for possible loan
losses...................... 1995 $ 2,712 2,586 2,820 11,645
1994 $ 1,381 889 1,198 1,156
==== ======== ======= ======= =======
Income (loss) before federal
income taxes................ 1995 $ 18,100 19,026 24,916 (5,373)
==== ======== ======= ======= =======
1994 $ 25,733 25,659 25,333 26,734
==== ======== ======= ======= =======
Extraordinary item, net of tax
effect...................... 1995 -- -- -- 5,599
==== ======== ======= ======= =======
1994 -- -- -- --
==== ======== ======= ======= =======
Net income.................... 1995 ($ 1,184) 12,664 16,649 3,189
==== ======== ======= ======= =======
1994 $ 17,866 17,862 17,602 18,019
==== ======== ======= ======= =======
Income (loss) per share before
extraordinary item.......... 1995 ($ 0.04) 0.38 0.50 (0.07)
==== ======== ======= ======= =======
1994 $ 0.54 0.54 0.52 0.54
==== ======== ======= ======= =======
Extraordinary item, net of tax
effect, per share........... 1995 -- -- -- 0.17
==== ======== ======= ======= =======
1994 -- -- -- --
==== ======== ======= ======= =======
Net income per share.......... 1995 ($ 0.04) 0.38 0.50 0.10
==== ======== ======= ======= =======
1994 $ 0.54 0.54 0.52 0.54
==== ======== ======= ======= =======
</TABLE>
20. 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.
50
<PAGE> 52
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/ JOHN R. COCHRAN /s/ GARY J. ELEK
JOHN R. COCHRAN GARY J. ELEK
President and Chief Senior Vice President
Executive Officer and Treasurer
51
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of FirstMerit
Corporation and subsidiaries as of December 31, 1995, and 1994, 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, 1995.
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, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
January 19, 1996
52
<PAGE> 54
FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS, FULLY-TAX EQUIVALENT INTEREST RATES AND
INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------ ------------------------------
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)............. $1,218,604 75,759 6.22% 1,289,286 74,960 5.81% 1,036,122 65,535 6.33%
Obligations of states
and political
subdivisions (tax-
exempt)............... 122,244 9,369 7.66 145,199 11,011 7.58 140,550 11,694 8.32%
Other securities........ 106,176 7,077 6.67 190,239 11,981 6.30 326,538 20,338 6.23%
---------- -------- --------- -------- --------- --------
Total investment
securities........ 1,447,024 92,205 6.37 1,624,724 97,952 6.03 1,503,210 97,567 6.49%
Federal funds sold........ 22,011 1,681 7.64 55,126 2,168 3.93 117,094 3,534 3.02%
Loans..................... 3,818,486 326,581 8.55 3,350,162 275,488 8.22 3,104,406 265,352 8.55%
Less allowance for
possible loan losses.... 37,923 -- -- 36,040 -- -- 33,709 -- --
---------- -------- --------- -------- --------- --------
Net loans........... 3,780,563 326,581 8.64 3,314,122 275,488 8.31 3,070,697 265,352 8.64%
---------- -------- --------- -------- --------- --------
Total earning
assets............ 5,249,598 420,467 8.01 4,993,972 375,608 7.52 4,691,001 366,453 7.81%
-------- -------- --------
Cash and due from banks... 220,787 204,513 232,833
Other assets.............. 184,426 187,273 190,020
---------- --------- ---------
Total assets........ $5,654,811 5,385,758 5,113,854
========= ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand -- non-interest
bearing............... $ 725,287 -- -- 666,469 -- -- 642,830 -- --
Demand -- interest
bearing............... 426,608 9,202 2.16 460,994 10,429 2.26 434,773 10,567 2.43%
Savings................. 1,514,374 38,438 2.54 1,710,909 43,372 2.54 1,664,407 46,471 2.79%
Certificates and other
time deposits......... 1,782,817 97,518 5.47 1,607,616 68,528 4.26 1,641,364 70,210 4.28%
---------- -------- --------- -------- --------- --------
Total deposits...... 4,449,086 145,158 3.26 4,445,988 122,329 2.75 4,383,374 127,248 2.90%
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings.... 609,247 35,775 5.87 374,351 17,853 4.77 198,586 7,901 3.98%
---------- -------- --------- -------- --------- --------
Total interest
bearing
liabilities....... 4,333,046 180,933 4.18 4,153,870 140,182 3.37 3,939,130 135,149 3.43%
---------- -------- --------- -------- ---------
Other liabilities......... 68,440 50,559 52,102
Shareholders' equity...... 528,038 514,860 479,792
---------- --------- ---------
Total liabilities
and shareholders'
equity............ $5,654,811 5,385,758 5,113,854
========= ======== ========
Net yield on earning
assets.................. 239,534 4.56 235,426 4.71 231,304 4.93
======= ======= ======= ======= ======= =======
Interest rate spread...... 3.83 4.15 4.38
======= ======= =======
Income on tax-exempt
securities and loans.... 8,034 10,454 12,061
======= ======= =======
</TABLE>
- - ---------------
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.
53
<PAGE> 55
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 February
28, 1996 ("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 5 through 21 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 22, 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 pages 18 and 19 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:
Consolidated Balance Sheets
December 31, 1995 and 1994
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Years ended December 31, 1995, 1994 and 1993
Management's Report
Independent Auditors' Report
(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.
(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)
54
<PAGE> 56
<TABLE>
<CAPTION>
CONTRACT, PLAN OR ARRANGEMENT REFERENCE LOCATION
- - ----------------------------------- -----------------------------------
<S> <C>
1982 Incentive Stock Option Plan of Registration Statement on Form S-8
FirstMerit Corporation No. 33-7266, Exhibit 4.2
1992 Stock Option Program of Form 10-K for fiscal year ended
FirstMerit Corporation December 31, 1991, Exhibit 10(c)
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)
1992 Directors Stock Option Program Form 10-K for fiscal year ended
December 31, 1991, Exhibit 10(g)
FirstMerit Corporation Executive Form 10-K for fiscal year ended
Supplemental Retirement Plan December 31, 1995, Exhibit 10(d)
Form of FirstMerit Corporation Form 10-K for fiscal year ended
Unfunded Supplemental Benefit December 31, 1991, Exhibit 10(j)
Plan
Directors' Deferral Fee Plan Form 10-K for fiscal year ended
December 31, 1995, Exhibit 10(f)
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
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 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(y)
Form of Director and Officer Form 8-K/A filed April 27, 1995,
Indemnification Agreement and Exhibit 10(i)
Form of Undertaking
Employment Agreement of John R. Form 10-Q for fiscal quarter ended
Cochran March 31, 1995, Exhibit 10(a)
Membership Agreement of John R. Form 10-Q for fiscal quarter ended
Cochran with respect to the March 31, 1995, Exhibit 10(b)
FirstMerit Corporation Executive
Supplemental Retirement Plan
Stock Option Agreement of John R. Form 10-Q for fiscal quarter ended
Cochran dated March 1, 1995 March 31, 1995, Exhibit 10(c)
FirstMerit Corporation 1995 Form 10-Q for fiscal quarter ended
Restricted Stock Plan March 31, 1995, Exhibit 10(d)
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
CONTRACT, PLAN OR ARRANGEMENT REFERENCE LOCATION
- - ----------------------------------- -----------------------------------
<S> <C>
Restricted Stock Award Agreement of Form 10-Q for fiscal quarter ended
John R. Cochran March 31, 1995, Exhibit 10(e)
Termination Agreement of John R. Form 10-Q for fiscal quarter ended
Cochran March 31, 1995, Exhibit 10(f)
Employment Agreement of Howard L. Form 10-Q for fiscal quarter ended
Flood September 30, 1995, Exhibit 10(a)
Addendum to Termination Agreement Form 10-K for fiscal year ended
of John R. Macso December 31, 1995, Exhibit 10(z)
FirstMerit Corporation Executive Form 10-K for fiscal year ended
Deferred Compensation Plan December 31, 1995, Exhibit 10(aa)
FirstMerit Corporation Director Form 10-K for fiscal year ended
Deferred Compensation Plan December 31, 1995, Exhibit 10(bb)
First Amendment to the 1992 Stock Form 10-K for fiscal year ended
Option Program December 31, 1995, Exhibit 10(cc)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by FirstMerit during the fourth quarter of
1995.
(c) Exhibits
See the Exhibit Index which appears following the Signatures section of this
report.
(d) Financial Statements
See subparagraph (a)(1) above.
56
<PAGE> 58
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 14th day of March, 1996.
FirstMerit Corporation
By:/s/ JOHN R. COCHRAN
John R. Cochran, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on the 14th day of March, 1996 by the following persons
(including a majority of the Board of Directors of the registrant) in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- - ---------------------------------------- ---------------------------------------------------
<S> <C>
/s/ JOHN R. COCHRAN President and Chief Executive Officer
- - ---------------------------------------- (Principal Executive Officer) and Director
John R. Cochran
/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
/s/ RICHARD A. CHENOWETH Director
- - ----------------------------------------
Richard A. Chenoweth
/s/ ELIZABETH A. DALTON Director
- - ----------------------------------------
Elizabeth A. Dalton
/s/ HOWARD L. FLOOD Director
- - ----------------------------------------
Howard L. Flood
/s/ TERRY L. HAINES Director
- - ----------------------------------------
Terry L. Haines
/s/ CLIFFORD J. ISROFF Director
- - ----------------------------------------
Clifford J. Isroff
/s/ PHILIP A. LLOYD Director
- - ----------------------------------------
Philip A. Lloyd, II
/s/ ROBERT G. MERZWEILER Director
- - ----------------------------------------
Robert G. Merzweiler
/s/ STEPHEN E. MYERS Director
- - ----------------------------------------
Stephen E. Myers
/s/ GILBERT H. NEAL Director
- - ----------------------------------------
Gilbert H. Neal
/s/ ROGER T. READ Director
- - ----------------------------------------
Roger T. Read
/s/ JUSTIN T. ROGERS, JR. Director
- - ----------------------------------------
Justin T. Rogers, Jr.
/s/ DEL SPITZER Director
- - ----------------------------------------
Del Spitzer
</TABLE>
<PAGE> 59
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 1992 Stock Option Program of FirstMerit Corporation
(10)(c)6 1992 Directors Stock Option Program
(10)(d) FirstMerit Corporation Executive Supplemental Retirement Plan
(10)(e)7 Form of FirstMerit Corporation Unfunded Supplemental Benefit Plan
(10)(f) Directors' Deferral Fee Plan
(10)(g)8 Form of Termination Agreement with certain of the executive officers of
FirstMerit Corporation and its Subsidiaries
(10)(h)9 Membership Agreement of Scott A. Lyons, Jr. with respect to the FirstMerit
Corporation Executive Supplemental Retirement Plan
(10)(i)10 Supplemental Pension Agreement of John R. Macso
(10)(j)11 1985 FirstMerit Corporation Stock Plan (CV)
(10)(k)12 1993 FirstMerit Corporation Stock Plan (CV)
</TABLE>
- - ---------------
1 Incorporated by reference to Exhibit 3(i) of FirstMerit's Forms 8-K filed
with the Commission on April 27, 1995.
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.
5 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.
6 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.
7 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.
8 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.
9 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.
10 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.
11 Incorporated by reference to Exhibit (10)(a) of FirstMerit's Form S-8 No.
33-57557, filed with the Commission on February 1, 1995.
12 Incorporated by reference to Exhibit (10)(b) of FirstMerit's Form S-8 No.
33-57557, filed with the Commission on February 1, 1995.
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ----------
<S> <C>
(10)(l)13 First Amendment to the FirstMerit Corporation Unfunded Supplemental Benefit Plan
(10)(m)14 FirstMerit Corporation Executive Committee Life Insurance Program Summary
(10)(n)15 Long Term Disability Plan
(10)(o)16 Form of Director and Officer Indemnification Agreement and Form of Undertaking
(10)(p)17 Distribution Agreement, by and among FirstMerit Corporation, First National Bank
of Ohio and the Agents, dated April 27, 1995
(10)(q)18 Form of First National Bank of Ohio Global Bank Note (Fixed Rate)
(10)(r)19 Form of First National Bank of Ohio Global Bank Note (Floating Rate)
(10)(s)20 Employment Agreement of John R. Cochran
(10)(t)21 Membership Agreement of John R. Cochran with respect to the FirstMerit
Corporation Executive Supplemental Retirement Plan
(10)(u)22 Stock Option Agreement of John R. Cochran dated March 1, 1995
(10)(v)23 FirstMerit Corporation 1995 Restricted Stock Plan
(10)(w)24 Restricted Stock Award Agreement of John R. Cochran
(10)(x)25 Termination Agreement of John R. Cochran
(10)(y)26 Employment Agreement of Howard L. Flood
</TABLE>
- - ---------------
13 Incorporated by reference to Exhibit (10)(v) of FirstMerit's Form 10-K for
the fiscal year ended December 31, 1994, filed with the Commission on March
2, 1995.
14 Incorporated by reference to Exhibit (10)(w) of FirstMerit's Form 10-K for
the fiscal year ended December 31, 1994, filed with the Commission on March
2, 1995.
15 Incorporated by reference to Exhibit (10)(x) of FirstMerit's Form 10-K for
the fiscal year ended December 31, 1994, filed with the Commission on March
2, 1995.
16 Incorporated by reference to Exhibit (10)(i) of FirstMerit's Form 8-K/A filed
with the Commission on April 27, 1995.
17 Incorporated by reference to Exhibit (10)(ii) of FirstMerit's Form 8-K/A
filed with the Commission on April 27, 1995.
18 Incorporated by reference to Exhibit (10)(iii) of FirstMerit's Form 8-K/A
filed with the Commission on April 27, 1995.
19 Incorporated by reference to Exhibit (10)(iv) of FirstMerit's Form 8-K/A
filed with the Commission on April 27, 1995.
20 Incorporated by reference to Exhibit (10)(a) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
21 Incorporated by reference to Exhibit (10)(b) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
22 Incorporated by reference to Exhibit (10)(c) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
23 Incorporated by reference to Exhibit (10)(d) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
24 Incorporated by reference to Exhibit (10)(e) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
25 Incorporated by reference to Exhibit (10)(f) of FirstMerit's Form 10-Q for
the fiscal quarter ended March 31, 1995, filed with the Commission on May 15,
1995.
26 Incorporated by reference to Exhibit (10)(a) of FirstMerit's Form 10-Q for
the fiscal quarter ended September 30, 1995, filed with the Commission on
November 14, 1995.
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - ----------
<S> <C>
(10)(z) Addendum to Termination Agreement of John R. Macso
(10)(aa) FirstMerit Corporation Executive Deferred Compensation Plan
(10)(bb) FirstMerit Corporation Director Deferred Compensation Plan
(10)(cc) First Amendment to the 1992 Stock Option Program
(21) Subsidiaries of FirstMerit Corporation
(23) Consent of Coopers & Lybrand
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10(d)
FIRSTMERIT CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
--------------------------------------
FirstMerit Corporation, fka First Bancorporation of Ohio (the
"Company"), adopted the First Bancorporation of Ohio Executive Supplemental
Retirement Plan (the "Plan"), effective as of February 13, 1987, in order to
provide supplemental retirement benefits for certain management employees who
become Members of the Plan.
The Company amended and restated the Plan in 1991 and has since adopted
a number of amendments to the Plan.
Section 9.07 of the Plan permits the Company to amend the Plan at any
time and from time to time.
The Company desires to amend and restate the Plan as hereinafter
provided to change the name of the Plan, to incorporate the amendments to the
Plan adopted since its last restatement and to revise the death benefit
provisions of the Plan.
ARTICLE I
TITLE AND EFFECTIVE DATE
------------------------
SECTION 1.01 This Plan shall be known as the FirstMerit Corporation
Executive Supplemental Retirement Plan (hereinafter referred to as the "Plan").
SECTION 1.02 The original effective date (the "Original Effective
Date") of the Plan is February 13, 1987. The Effective Date of the Plan, as
amended and restated herein, shall be the date the Plan, as amended and
restated herein, is approved by the Board of Directors.
ARTICLE II
DEFINITIONS
-----------
As used herein, the following words and phrases shall have the meanings
specified below unless a different meaning is clearly required by the context:
SECTION 2.01 The terms "Actuarial Equivalent" or "Actuarially
Determined" shall mean a benefit of equivalent value when computed on the basis
of the assumptions as to interest and mortality set forth in the Qualified
Plan.
SECTION 2.02 The term "Attained Age" shall mean the age of a Member as
of his or her
<PAGE> 2
SECTION 2.03 The term "Average Monthly Earnings" shall mean an amount
determined by dividing by twenty four (24) the sum of the Member's base salary
for the two (2) calendar years during the Member's employment with the Employer
in which the Member's base salary is the highest, regardless of whether such
years are consecutive. If the Member has been employed by the Employer for less
than two (2) full calendar years, "Average Monthly Earnings" shall mean an
amount determined by dividing the number of full months that the Member has
been employed by the Employer into whichever of the following sums is
applicable: (1) the sum of the Member's rate of monthly base salary for
each full month that the Member has been employed by the Employer, or (2) if
the Member is paid on a bi-weekly basis, the sum of the Member's bi-weekly base
salary for each of the completed bi-weekly pay periods included in the period
of the Member's employment by the Employer.
SECTION 2.04 The term "Beneficiary" shall mean any person, persons,
trust, or the estate of a Member who or which is designated by the Member to
receive any Death Benefits payable under this Plan.
SECTION 2.05 The term "Board of Directors" shall mean the Board of
Directors of FirstMerit Corporation.
SECTION 2.06 The term "Committee" shall mean the Compensation
Committee of the Board of Directors.
SECTION 2.07 The term "Death Benefit" shall mean any benefit paid to a
Beneficiary upon the death of a Member as provided under the terms of this
Plan.
SECTION 2.08 The term "Disability" or "Disabled" shall mean
eligibility for disability benefits under the terms of the Employer's Long-Term
Disability plan in effect at the time the Member becomes disabled.
SECTION 2.09 The term "Early Retirement Date" shall mean the date of a
Member's retirement during the period commencing on the first day of the month
coincident with or immediately following the member's fifty-fifth (55) birthday
and ending on the Member's Normal Retirement Date.
SECTION 2.10 The term "Effective Date" shall mean the date that this
Plan, as amended and restated herein, is approved by the Board of Directors.
SECTION 2.11 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 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.
2
<PAGE> 3
SECTION 2.12 The term "Member" shall mean an employee of the Employer
who is part of a select group of management and has become a Member as provided
in Article III hereof.
SECTION 2.13 The term "Monthly Disability Income" shall mean a monthly
income due a Disabled Member as provided in Article VI hereof.
SECTION 2.14 The term "Monthly Retirement Income" shall mean a monthly
income due a Retired Member which shall commence as of his Retirement Date and
continue for the period provided herein.
SECTION 2.15 The term "Normal Retirement Date" shall mean the first
day of the month coinciding with or immediately following the Member's
sixty-fifty (65) birthday.
SECTION 2.16 The term "Plan" shall mean the FirstMerit Corporation
Executive Supplemental Retirement Plan.
SECTION 2.17 The term "Previous Employer Plan" shall mean any
retirement, pension or profit sharing plan or similar fund or program of any
previous employer of a Member in which a Member participated, including without
limitation, any defined contribution plan, simplified employer plan or, if a
Member's previous employer was unincorporated or the Member was previously
self-employed, or considered to be self-employed, any Keogh plan which was
established by the Member or in which the Member was a participant. The term
"Previous Employer Plan" shall not include a 401(k), savings or thrift plan
maintained by a Member's previous employer.
SECTION 2.18 The term "Primary Social Security Benefit" shall mean the
estimated Primary Insurance Amount (payable monthly) available to a Member at
age sixty-five (65) under the Social Security Act in effect at the Member's
Retirement Date.
SECTION 2.19 The term "Qualified Plan" shall mean the Pension Plan for
Employees of FirstMerit Corporation and Subsidiaries.
SECTION 2.20 The term "Retired Member" shall mean any Member of the
Plan who has qualified for retirement and has retired, and who is eligible to
receive a Monthly Retirement Income by direction of the Committee.
SECTION 2.21 The term "Retirement Date" shall mean the first day of
the month coinciding with or immediately following the month the Member
terminates employment due to retirement.
SECTION 2.22 The term "Unfunded Supplemental Benefit Plan" shall mean
the "excess benefit plan" known as the FirstMerit Corporation Unfunded
Supplemental Benefit Plan (Effective as of January 1, 1984) and any
amendments or successor plans thereto.
3
<PAGE> 4
SECTION 2.23 For purposes of Section 4.01, a Member's "Years of
Service" under this Plan shall be determined in the same manner as a Member's
"Credited Years of Service" are determined under the Qualified Plan and,
therefore, a Member's Years of Service under this Plan shall equal his Credited
Years of Service under the Qualified Plan; provided, however, that the
Committee may, in its sole discretion, credit a Member with more Years of
Service under this Plan for purposes of Section 4.01 than the Member's Credited
Years of Service under the Qualified Plan. For purposes of Section 4.05, a
"Year of Service" shall mean a period of twelve (12) consecutive months
commencing on the date that an employee of the Employer first becomes a Member
of this Plan, or on any anniversary of such date, during which the Member
completes at least One Thousand (1,000) Hours of Service (as defined in the
Qualified Plan); provided, however, that the Committee, in its sole discretion,
may credit a Member with Years of Service for purposes of Section 4.05 with
respect any period prior to the date that the Member first became a Member of
this Plan, regardless of whether the Member was an employee of the Employer
during all or a portion of such prior period.
ARTICLE III
MEMBERSHIP IN THE PLAN
----------------------
SECTION 3.01 Eligibility for membership in this Plan shall be
determined by the Board of Directors in its sole discretion, on an individual
basis. An employee of the Employer who is a Member of this Plan as of the
Effective Date shall continue to participate as a Member of this Plan after the
Effective Date.
ARTICLE IV
MONTHLY RETIREMENT INCOME
-------------------------
SECTION 4.01 Subject to the provisions of Article X, a Member who
retires on or after his Normal Retirement Date shall be entitled to receive a
Monthly Retirement Income under this Plan. The amount of a Member's Monthly
Retirement Income shall be equal to fifty percent (50%) of his Average Monthly
Earnings, determined as of his Retirement Date, plus one and one-half percent
(1.5%) of his Average Monthly Earnings, determined as of his Retirement Date,
for each Year of Service with the Employer, up to ten (10) Years of Service,
excluding, however, Years of Service after his Normal Retirement Date.
Notwithstanding the preceding sentence, a Member's Monthly Retirement Income
shall not exceed sixty five percent (65%) of the Member's Average Monthly
Earnings, determined as of his Retirement Date. The Member's Monthly Retirement
Income shall be reduced by the following amounts:
(a) One hundred percent (100%) of his monthly Primary Social
Security Benefit payable at his Retirement Date under the Social Security law
in effect at that time.
4
<PAGE> 5
(b) One hundred percent (100%) of his monthly income payable under
the Qualified Plan, calculated in the form of a starlight life annuity
commencing on the Member's Retirement Date.
(c) One hundred percent (100%) of his monthly income, if any,
payable under the Unfunded Supplemental Benefit Plan, calculated in the form of
a straight life annuity commencing on the Member's Retirement Date.
(d) One hundred percent (100%) of his monthly income, if any,
payable under any other supplemental retirement plan, program, agreement, trust
or annuity provided to the Member by the Employer, calculated in the form of a
straight life annuity commencing on the Member's Retirement Date.
(e) One hundred percent (100%) of the benefits received by the
Member under any Previous Employer Plan. Amounts payable to the Member pursuant
to a Previous Employer Plan, including without limitation, lump sum
distributions, shall be Actuarially Determined as a straight life annuity
payable in equal monthly installments, regardless of the actual form of payment
received by the Member. In the event that the Member has received a lump sum
distribution of all or part of his benefit under a Previous Employer Plan prior
to his retirement under this Plan, the amount of offset shall be Actuarially
Determined by assuming that such lump sum distribution accumulated interest
until the date of the Member's retirement under this Plan and by determining
the amount of a straight life annuity payable to the Member from such adjusted
lump sum distribution amount.
SECTION 4.02 Subject to the provisions of Article X, a Member who has
attained age 55 and who elects Early Retirement shall receive a Monthly
Retirement Income determined as provided in Section 4.01, without regard to
subparagraphs (a), (b), (c), (d) or (e) thereof, reduced by three percent (3 %)
for every year that the Member's Attained Age on his Retirement Date is less
than 65 as set forth in the following table.
(The balance of this page is intentionally left blank.)
5
<PAGE> 6
<TABLE>
<CAPTION>
RETIREMENT INCOME
AS A PERCENT OF
MONTHLY RETIREMENT
INCOME CALCULATED
UNDER SECTION 4.01
WITHOUT REGARD TO
ATTAINED AGE AT SUBPARAGRAPHS (a),
EARLY RETIREMENT (b), (c), (d) OR (e)
<S> <C>
55 70%
56 73%
57 76%
58 79%
59 82%
60 85%
61 88%
62 91%
63 94%
64 97%
</TABLE>
A Member's Monthly Retirement Income calculated under this Section 4.02
shall be further reduced by the following amounts:
(a) One hundred percent (100%) of his Primary Social Security Benefit
payable at his Retirement Date under the Social Security law in effect at that
time. A Member who retires prior to age 62 shall have his benefits reduced by
his Primary Social Security payable at age 62, but such reduction shall not
occur until the Member attains age 62.
(b) One hundred percent (100%) of his monthly income payable under
the Qualified Plan, calculated in the form of a straight life annuity
commencing on the Member's Retirement Date.
(c) One hundred percent (100%) of his monthly income, if any, payable
under the Unfunded Supplemental Benefit Plan, calculated in the form of a
straight life annuity commencing on the Member's Retirement Date.
(d) One hundred percent (100%) of his monthly income, if any, payable
under any other supplemental retirement plan, program, agreement, trust, or
annuity provided to the Member by the Employer, calculated in the form of a
straight life annuity commencing on the Member's Retirement Date.
(e) One hundred percent (100%) of the benefits received by the Member
under any Previous Employer Plan. Amounts payable to the Member pursuant to a
Previous Employer Plan, including without limitation, lump sum distributions,
shall be Actuarially Determined as a straight life annuity payable in equal
monthly installments, regardless of the actual form of
6
<PAGE> 7
payment received by the Member. If the Member has received a lump sum
distribution of all or part of his benefit under a Previous Employer Plan prior
to his retirement under this Plan, the amount of offset shall be Actuarially
Determined by assuming that such lump sum distribution accumulated interest
until the date of the Member's retirement under this Plan and by determining
the amount of a straight life annuity payable to the Member from such adjusted
lump sum distribution amount.
Notwithstanding the foregoing, effective on and after January 30, 1995,
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:
(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.
SECTION 4.03 If a Member remains in the employ of the Employer
subsequent to his Normal Retirement Date, no Monthly Retirement Income shall be
paid until his actual Retirement Date. At that time he shall be entitled to
receive a Monthly Retirement Income calculated as though he had retired on his
Normal Retirement Date.
SECTION 4.04 A Member's Monthly Retirement Income, calculated under
either Section 4.01 or 4.02, shall be paid monthly commencing on the Member's
Retirement Date and continuing on the same day of each of the one hundred and
seventy-nine (179) months immediately following the month in which such
Retirement Date occurs. Alternatively, the Member may elect to have his Monthly
Retirement Income paid as the Actuarial Equivalent of any form of payment
permitted under the Qualified Plan. Notwithstanding the preceding sentence, an
election made by a Member under the Qualified Plan with respect to the form of
7
<PAGE> 8
payment of his benefits under the Qualified Plan shall not be effective with
respect to the form of payment of his Monthly Retirement Income under this Plan
unless such election is expressly approved in writing by the Committee. If the
Committee shall not approve such election in writing, then the form of payment
of the Member's Monthly Retirement Income under this Plan shall be selected by
the Committee in its sole discretion.
SECTION 4.05 Subject to the provisions of Article X, upon termination
of a Member's Employment with the Employer for any reason prior to his
attainment of age 55, the Member shall be entitled to receive a deferred vested
Monthly Retirement Income, which shall be paid in accordance with Section 4.04
commencing on the Member's Normal Retirement Date, or if the Member so elects,
upon his Early Retirement Date. The amount of the Monthly Retirement Income
payable pursuant to this Section 4.05 shall be equal to the Member's Monthly
Retirement Income calculated under Section 4.01 (or under Section 4.02 if the
Member elects to begin receiving his deferred vested Monthly Retirement Income
upon his Early Retirement Date). Such Monthly Retirement Income shall be
calculated using the Member's Average Monthly Earnings determined as of the
date of his termination of employment and, after reduction pursuant to Sections
4.01(a), (b), (c), (d), and (e), as applicable, or pursuant to Sections
4.02(b), (c), (d), and (e), as applicable, if the Member elects to begin
receiving his deferred vested Monthly Retirement Income upon his Early
Retirement Date, shall be further reduced by ten percent (10%) for each Year of
Service that such Member's Years of Service, earned as of the date of his
termination of employment, are less than ten (10).
ARTICLE V
DEATH BENEFITS
--------------
SECTION 5.01 Subject to the provisions of Article X, in the event of
the death of a Retired Member, the Member's Beneficiary shall be entitled to
receive the balance of the Monthly Retirement Income payments that would have
been paid to the Member had he lived.
SECTION 5.02 Subject to the provisions of Article X, in the event of
the death of a Member or a Disabled Member prior to his Retirement Date, the
Member's Beneficiary shall be entitled to receive a Death Benefit equal to one
hundred percent (100%) of a Monthly Retirement Income calculated as if the
Member's Retirement Date occurred on the day before his death. Such Monthly
Retirement Income shall be calculated under Section 4.01, if the Member's death
occurs on or after his Normal Retirement Date, and under Section 4.02, if the
Member's death occurs prior to his Normal Retirement Date. If the Member's
death occurs prior to his attainment of age 55, the death benefit provided
under this Section 5.02 shall be determined under Section 4.02 as if the Member
had attained age 55 on the date of his death. Such death benefit shall be paid
in accordance with the provisions of Section 4.04, except that it shall
commence on the First day of the second month following the month in which the
Member's death occurs.
8
<PAGE> 9
ARTICLE VI
DISABILITY
----------
SECTION 6.01 Subject to the provisions of Article X, if a Member is
determined to be Disabled prior to his Normal Retirement Date, upon attaining
age 65, the Disabled Member shall be entitled to receive a Monthly Retirement
Income calculated pursuant to Section 4.01 with Years of Service during the
Disability also counted as Years of Service with the Employer. Such Monthly
Retirement Income shall be paid to the Disabled Member in accordance with the
provisions of Section 4.04.
ARTICLE VII
PLAN ADMINISTRATION
-------------------
SECTION 7.01 The Committee shall administer the Plan and keep records
of individual Member benefits.
SECTION 7.02 The Committee shall have the authority to interpret the
Plan, to adopt and review rules relating to the Plan and to make any other
determinations required for the administration of the Plan.
SECTION 7.03 Subject to the terms of the Plan, the Committee shall
have exclusive jurisdiction (i) to determine the form and method of any benefit
payments, (ii) to establish the timing of benefit distributions, and (iii) to
settle claims according to the provisions in Article VIII.
ARTICLE VIII
NAMED FIDUCIARY AND CLAIMS PROCEDURE
------------------------------------
SECTION 8.01 (a) The Named Fiduciary of the plan and for purposes of
the claims procedure under this Plan is the Chief Human Resources Officer of
FirstMerit Corporation.
(b) The Board of Directors shall have the right to change the Named
Fiduciary at any time and from time to time. The Employer shall give the
Members written notice of any change of the Named Fiduciary or any change in
the address of the Named Fiduciary.
SECTION 8.02 Benefits shall be paid in accordance with the provisions
of this Plan. The Member, or his Beneficiary or contingent Beneficiary
(hereinafter collectively referred to as the "Claimant") shall make a written
request for the benefits provided under this Plan. Such written claim shall be
mailed or delivered to the Named Fiduciary by registered mall.
9
<PAGE> 10
SECTION 8.03 If the claim is denied, either wholly or partially,
notice of the decision shall be sent by registered mail to the Claimant within
a reasonable time period. Such time period shall not exceed ninety (90) days
after the receipt of the claim by the Named Fiduciary.
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.01 Nothing contained in this Plan shall be deemed to give
any Member or employee the right to be retained in the service of the Employer
or to interfere with the right of the Employer to discharge any Member or
employee at any time, regardless of the effect which such discharge shall have
upon him as a Member of the Plan.
SECTION 9.02 The rights of the Member, the Beneficiary of the Member,
or any other person claiming through the Member under this Plan, shall be
solely those of an unsecured general creditor of the Employer. Benefits
provided under this Plan shall not be separately funded by the Employer but
shall be paid out of the operating funds of the Employer as such benefits
become due.
SECTION 9.03 The Plan does not involve a reduction in salary for the
Member or the foregoing of an increase in future salary by the Member.
SECTION 9.04 A Retired Member shall not be considered an employee for
any purpose under the law.
SECTION 9.05 If no Beneficiary has been designated or survives a
Member, any amounts to be paid to the Member's Beneficiary shall be paid to the
Member's estate.
SECTION 9.06 Except insofar as this provision may be contrary to
applicable law, no sale, transfer, alienation, assignment, pledge,
collateralization, or attachment of any benefits under this Plan shall be valid
or recognized by the Committee.
SECTION 9.07 The Employer reserves the right at any time and from time
to time, by action its Board of Directors to terminate, modify or amend, in
whole or in part, any or all of the provisions of the Plan, including
specifically the right to make any such amendments effective retroactively;
provided that no such action shall reduce the benefits or rights of any Member
or his Beneficiary accrued prior to the date of any such amendment,
modification or termination. In addition, the Employer may amend or modify any
provision of this Plan as to any particular Member by agreement with such
Member, provided that such agreement is in writing, is executed by both the
Employer and the Member, and is filed with the Plan records. The provisions of
any amendment or modification made by agreement between a Member and the
Employer shall apply only to the Member so agreeing and no other.
10
<PAGE> 11
SECTION 9.08 A Member shall have the right to change his Beneficiary
by notifying the Committee of such in writing. Such change shall become
effective upon written acknowledgment of same by the Employer. Any payments
made by the Employer to a Beneficiary in good faith and under the terms of
the Plan shall fully discharge the Employer from all further obligations with
respect to such Beneficiary.
SECTION 9.09 This Plan shall be binding upon and inure to the benefit
of the Employer, its successors and assigns and each Member and his heirs,
executors, administrators, legal representatives, successors and assigns,
provided however that a Member may not assign his rights hereunder without the
express written consent of the Employer.
SECTION 9.10 This Plan shall be governed by the laws of Ohio. This
Plan is solely between the Employer and the Member. The Member, his Beneficiary
or other persons claiming through the member shall have recourse only against
the Employer for enforcement of the Plan.
SECTION 9.11 Any words herein used in the masculine shall be read and
construed in the feminine where they would so apply. Words in the singular
shall be read and construed as though used in the plural in all cases where
they would so apply.
SECTION 9.12 The obligations of the Employer under this Plan shall be
subject to all applicable laws, rules and regulations, and such approvals by
governmental agencies as may be required or as the Employer deems advisable.
ARTICLE X
FORFEITURE OF BENEFITS
----------------------
SECTION 10.01 The Committee may forfeit, or suspend the payment of,
benefits under this Plan payable to any Member, or Beneficiary of a Member, if
the Committee determines, in its sole discretion, that the Member committed one
or more of the following acts while employed by the Employer:
(a) Felonious criminal activity whether or not affecting the
Employer.
(b) Disclosure to unauthorized persons of Employer information
which is believed by the board of directors of the Employer to be confidential.
(c) Dishonesty or breach of any contract with, or violation of any
legal obligation to, the Employer.
(d) Gross negligence or insubordination in the performance of
duties of the position held by the Employee.
11
<PAGE> 12
SECTION 10.02 A Member receiving benefits from this Plan who, within
three (3) years after the date of termination of employment with the Employer,
competes against the Employer will, at the sole discretion of the Committee,
have his benefits suspended or forfeited at the time or for the period
determined by the Committee.
A Member will be deemed to be competing with the Employer if he engages
or becomes interested in or connected with any business or venture that is
competitive with the business of the Employer.
(a) A business or venture will be considered competitive with that
of the Employer:
(i) If it is conducted in whole or in part within a radius
of one hundred (100) miles of the office to which the Member is
assigned on the date of his termination of employment; and
(ii) If it involves the conduct of any business or the furnishing
of any financial or banking services that a national banking
association, bank holding company, state bank, savings and loan
association or other regulated financial institution is permitted by
law to conduct or furnish on the date his employment is terminated.
(b) A Member will be deemed to be directly or indirectly engaged,
interested or participating in a business or venture if he is a stockholder,
partner, proprietor, officer, director, consultant, agent or employee of such
business or venture or an investor who, directly or indirectly, has advanced on
loan, contributed to capital or expended for the purchase of stock an amount or
amounts constituting five percent (5 %) or more of the capital or assets of
such business or venture.
IN WITNESS WHEREOF, FirstMerit Corporation has caused this amendment
and restatement of the Plan to be duly executed and adopted this 17th day of
August, 1995.
FirstMerit Corporation
Attest: /s/ Terry E. Patton By: /s/ John R. Cochran
------------------- -------------------
Secretary John R. Cochran
Its: President & Chief
Executive Officer
12
<PAGE> 13
REVOCABLE BENEFICIARY DESIGNATION
WITH RESPECT TO THE
FIRSTMERIT CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
The undersigned (the "Member"), who is a Member in the FirstMerit
Corporation Executive Supplemental Retirement Plan (the "Plan"), hereby directs
that the Death Benefits, if any, payable under Article V of the Plan on account
of the Member's death shall be paid to the following named person, persons, or
trusts (the "Beneficiaries") in the following percentages:
Name of Beneficiary Percentage
------------------- ----------
______________________________________ __________
______________________________________ __________
______________________________________ __________
The Member reserves the right to revoke the foregoing designation of
Beneficiary at any time and from time to time prior to his death by means of
the execution of a new Revocable Beneficiary Designation and delivery of the
same to FirstMerit Corporation. The Member acknowledges and agrees that
FirstMerit Corporation will pay the Death Benefit, if any, payable under
Article V of the Plan on account of the Member's death, to the Beneficiary or
Beneficiaries designated by the undersigned on the last Revocable Beneficiary
Designation signed by the Member and delivered to FirstMerit Corporation prior
to the Member's death. The Member further acknowledges and agrees that if no
designated Beneficiary is living or in existence at the Member's death, the
Beneficiary shall be the executor(s) or administrator(s) of the Member's
estate.
This Revocable Beneficiary Designation revokes all prior designations
and shall be effective as of the date it is filed with FirstMerit Corporation.
IN WITNESS WHEREOF, the Member has duly executed this Revocable
Beneficiary Designation this day ____ of _______________ 199__.
_____________________________
_____________________________
(Name)
<PAGE> 1
Exhibit 10(f)
FIRST BANCORPORATION OF OHIO
DIRECTORS' DEFERRED FEE PLAN
Effective October 1, 1986
<PAGE> 2
FIRST BANCORPORATION OF OHIO
DIRECTORS' DEFERRED FEE PLAN
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - PURPOSE 1
ARTICLE II - DEFINITIONS
2.1 Beneficiary 1
2.2 Board 1
2.3 Committee 1
2.4 Company 1
2.5 Declared Rate 1
2.6 Deferral Benefit 1
2.7 Deferred Benefit Account 2
2.8 Designation of Form for Payment 2
2.9 Determination Date 2
2.10 Director 2
2.11 Fee 2
2.12 Participant 2
2.13 Participation Agreement 2
2.14 Plan Year 2
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.1 Eligibility 2
3.2 Participation 3
3.3 Amount of Deferral 3
ARTICLE IV - DEFERRED FEES
4.1 Elective Deferred Fees 3
4.2 Vesting of Deferred Benefit
Account 3
ARTICLE V - DEFERRED BENEFIT ACCOUNT
5.1 Determination of Account 4
5.2 Crediting of Account 4
5.3 Statement of Accounts 4
ARTICLE VI - BENEFITS
6.1 Termination of Service
as Director 4
6.2 In-Service Withdrawal 4
6.3 Death Benefit 5
6.4 Form of Benefit Payment 5
6.5 Commencement of Payments 6
</TABLE>
(i)
<PAGE> 3
FIRST BANCORPORATION OF OHIO
DIRECTORS' DEFERRED FEE PLAN
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VII - BENEFICIARY DESIGNATION
7.1 Beneficiary Designation 6
7.2 Amendments 6
7.3 No Participant Designation 6
7.4 Effect of Payment 7
ARTICLE VIII - ADMINISTRATION
8.1 Committee; Duties 7
8.2 Agents 7
8.3 Binding Effect of Decisions 7
8.4 Indemnity of Committee 7
ARTICLE IX - CLAIMS PROCEDURE
9.1 Claim 7
9.2 Denial of Claim 7
9.3 Review of Claim 8
9.4 Final Decision 8
ARTICLE X - AMENDMENT AND TERMINATION OF PLAN
10.1 Amendment 8
10.2 Termination of Plan 8
ARTICLE XI - MISCELLANEOUS
11.1 Unsecured General Creditor 9
11.2 Non-assignability 9
11.3 Not a Contract of Employment 9
11.4 Participant Cooperation 9
11.5 Terms 10
11.6 Captions 10
11.7 Governing Law 10
11.8 Validity 10
11.9 Notice 10
11.10 Successors 10
</TABLE>
(ii)
<PAGE> 4
FIRST BANCORPORATION OF OHIO
----------------------------
DIRECTORS' DEFERRED FEE PLAN
----------------------------
ARTICLE I
---------
PURPOSE
-------
The purpose of the First Bancorporation of Ohio Directors' Deferred Fee
Plan (hereinafter referred to as the "Plan") is to provide funds for
termination of service or death for Directors (and their beneficiaries) of
First Bancorporation of Ohio. It is intended that the Plan will aid in
retaining and attracting Directors of exceptional ability.
ARTICLE II
----------
DEFINITIONS
-----------
For the purpose of this Plan, the following words and phrases shall have
the meanings indicated, unless the context clearly indicates otherwise:
2.1 BENEFICIARY. "Beneficiary" means the person, persons or entity
designated by the Participant, or as provided in Article VII, to receive any
benefits payable under the Plan.
2.2 BOARD. "Board" means the Board of Directors of First Bancorporation
of Ohio.
2.3 COMMITTEE. "Committee" means the Executive Committee of the Board.
2.4 COMPANY. "Company" means First Bancorporation of Ohio and its
subsidiaries as set forth in Appendix "A" attached hereto.
2.5 DECLARED RATE. "Declared Rate" means with respect to any calendar
month two (2) percentage points over the average of the composite yield on
Moody's Average Corporate Bond Yield for the month of October immediately
preceding the Plan Year as determined from Moody's Bond Record published by
Moody's Investors Services, Inc. (or any successor thereto), or, if such
monthly yield is no longer published, a substantially similar average selected
by the Company. The Committee shall establish the Declared Rate effective as of
January 1 of each Plan Year. For the first Plan Year, the Declared Rate shall
be 11.52%. Such Declared Rate, once established, shall be used for all interest
determinations during such Plan Year.
2.6 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit payable to a
Participant or his Beneficiary on his death or termination of service as a
Director, or In-Service Withdrawal, as calculated in Article VI hereof.
<PAGE> 5
2.7 DEFERRED BENEFIT ACCOUNT. "Deferred Benefit Account" means the
account maintained on the books of the Company for each Participant pursuant to
Article V. A Participant's Deferred Benefit Account shall be utilized solely as
a device for the measurement and determination of the amounts to be paid to the
Participant pursuant to this Plan. A Participant's Deferred Benefit Account
shall not constitute or be treated as a trust fund of any kind.
2.8 DESIGNATION OF FORM FOR PAYMENT. "Designation of Form for Payment"
means the agreement filed by a Participant designating the manner in which the
Participant's Deferred Benefit Account balance shall be paid to the
Participant or his beneficiary.
2.9 DETERMINATION DATE. "DETERMINATION Date" means the date on which the
amount of a Participant's Deferred Benefit Account is determined as provided
in Article V hereof. The last day of each calendar month shall be the
Determination Date.
2.10 DIRECTOR. "Director" means an active member of the Board of Directors
of the Company and shall not include Emeriti Directors.
2.11 FEE. "Fee" or "Fees" means any compensation paid to a Director for
his services as a Director.
2.12 PARTICIPANT. "Participant" means any eligible Director who elects to
participate by filing a Participation Agreement as provided in Article III.
2.13 PARTICIPATION AGREEMENT. "Participation Agreement" means the
agreement filed by a Participant prior to the beginning of the first period for
which the Participant's Fees are to be deferred pursuant to the Plan and the
Participation Agreement. A new Participation Agreement shall be filed by the
Participant on an annual basis for each separate Fee deferral election.
2.14 PLAN YEAR. "Plan Year" means a twelve month period commencing January
1st and ending the following December 31st. The first Plan Year shall commence
October 1, 1986 and end December 31, 1986.
ARTICLE III
-----------
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 ELIGIBILITY. Eligibility to participate in the Plan is limited to
those Directors who are not employees of the Company.
-2-
<PAGE> 6
3.2 PARTICIPATION. Participation in the Plan shall be limited to
Directors of the Company who elect to participate in the Plan by filing a
Participation Agreement with the Company. In addition, a Participant who is
also a Director of a subsidiary as set forth in Appendix A attached hereto,
must also elect to defer all Fees received from such corporation under this
Plan. A Participation Agreement must be filed prior to the December 15th
immediately preceding the Plan Year in which the Participant's participation
under the agreement will commence, and the election to participate shall be
effective on the first day of the Plan Year following receipt by the Company of
a properly completed and executed Participation Agreement. In the event that an
individual first becomes eligible to participate during the course of a Plan
Year, a Participation Agreement must be filed no later than 30 days following
notification of the individual by the Committee of eligibility to participate
and such Participation Agreement shall be effective only with regard to Fees
earned or payable following the filing of the Participation Agreement with the
Committee.
3.3 AMOUNT OF DEFERRAL. A Participant may elect in any Participation
Agreement to defer all, and not less than all, of his Fees. A Participant's
election to defer his Fees shall be irrevocable for the applicable Plan Year
upon the filing of the respective Participation Agreement; provided, however,
that the deferral of Fees under any Participation Agreement may be suspended or
amended as provided in Sections 10.1 or 10.2.
ARTICLE IV
----------
DEFERRED FEES
-------------
4.1 ELECTIVE DEFERRED FEES. The amount of Fees that a Participant elects
to defer under this Plan shall be credited by the Company to the Participant's
Deferred Benefit Account as the Participant's Fees are payable. The amount
credited to a Participant's Deferred Benefit Account shall equal the amount
deferred. To the extent that the Company is required to withhold any taxes or
other amounts from the Directors' deferred Fees pursuant to any state, federal
or local law, such amounts shall be withheld from the Participant's Fees before
such amounts are credited.
4.2 VESTING OF DEFERRED BENEFIT ACCOUNT. A Participant shall be 100%
vested in the Deferred Benefit Account at all times.
-3-
<PAGE> 7
ARTICLE V
---------
DEFERRED BENEFIT ACCOUNT
------------------------
5.1 DETERMINATION OF ACCOUNT. Each Participant's Deferred Benefit Account
as of each Determination Date shall consist of the balance of the Participant's
Deferred Benefit Account as of the immediately preceding Determination Date
plus the Participant's elective deferred Fees withheld since the immediately
preceding Determination Date pursuant to the Section 4.1. The Deferred Benefit
Account of each Participant shall be reduced by the amount of all
distributions, if any, made from such Deferred Benefit Account since the
preceding Determination Date.
5.2 CREDITING OF ACCOUNT. As of each Determination Date, the Participant's
Deferred Benefit Account shall be increased by the amount of interest earned
since the preceding Determination Date. Interest shall be based upon the
Declared Rate as defined in Section 2. 6. Interest shall be based upon the
average daily balance of the Participant's Deferred Benefit Account since the
last preceding Determination Date, but after the Deferred Benefit Account has
been adjusted for any contributions or distributions to be credited or deducted
for each such day.
5.3 STATEMENT OF ACCOUNTS. The Committee shall submit to each
Participant, within 120 days after the close of each Plan Year, a statement in
such form as the Committee deems desirable, setting forth the balance to the
credit of such Participant in his Deferred Benefit Account as of the last day
of the preceding Plan Year.
ARTICLE VI
----------
BENEFITS
--------
6.1 TERMINATION OF SERVICE AS DIRECTOR. Upon any termination of service
of the Participant with the Company for reasons other than his death, the
Company shall pay to the Participant a Deferral Benefit equal to the amount of
his Deferred Benefit Account determined under Section 5.1 and 5.2.
6.2 IN-SERVICE WITHDRAWAL. Subject to making a timely In-Service
Withdrawal election, Participant may receive Plan Benefits while still in
service with the Company. The election to receive the In Service Withdrawal
must be made by notifying the Committee of such election at least one (1)
calendar year prior to the date Deferral Benefits are elected to commence. The
Company shall pay to the Participant a Deferral Benefit equal to the amount of
his Deferred Benefit Account determined under Sections 5.1 and 5.2.
-4-
<PAGE> 8
6.3 DEATH BENEFIT. Upon the death of a Participant, the Company
shall pay to the Participant's Beneficiary an amount determined as follows:
a) If the Participant dies after Termination as a Director,
the amount payable shall be equal to the remaining unpaid balance
of his Deferred Benefit Account.
b) If the Participant dies prior to Termination as a
Director, the amount payable shall be the greater of (i) the
remaining balance in his Deferred Benefit Account; or (ii) two
(2) times the amount actually deferred by the Participant under
this Plan.
The Deferral Benefit provided above shall be in lieu of all other
benefits under this Plan.
6.4 FORM OF BENEFIT PAYMENT.
a) Upon the happening of an event described in Sections 6.1,
6.2 or 6.3 above, the Company shall pay to the Participant or his
Beneficiary, the amount specified therein in one of the following
forms as elected by Participant in the Designation of Form for
Payment filed by the Participant.
1) A monthly payment of a fixed amount which shall
amortize the Deferred Benefit Account balance, or the
Deferral Benefit payable on death, as applicable, in equal
monthly payments of principal and interest over a period of
120 months. For purposes of determining the amount of the
monthly payment, the rate of interest shall be the average
of the Declared Rate for the five years preceding the
initial payment.
2) A lump sum
3) A combination of (a) and (b) above. The Participant shall
designate the percentage payable under each option.
b) A Participant may request payment of his Deferred Benefit
Account over a period of less than 120 months. The Committee may
approve or disapprove any such request.
c) A Participant may change the form in which his benefits
shall be paid by filing a revised Designation of Form for Payment
indicating such change at least one calendar year prior to the
date payments are to commence. Said Designation of Form for
Payment shall be irrevocable beginning one (1) calendar year
prior to the date payments are to commence.
-5-
<PAGE> 9
6.5 COMMENCEMENT OF PAYMENTS.
a) Commencement of payments under Sections 6.1 and 6.3 of
this Plan shall begin within 60 days following receipt of notice
by the Committee of an event which entitles a Participant (or a
Beneficiary) to payments under this Plan, or at such earlier date
as may be detained by the Committee.
b) Commencement of payments under Section 6.2 of this Plan
shall begin upon the date requested by the Participant but shall
be at least one (1) calendar year following receipt of notice by
the Committee of Participant's election to receive the In
Service Withdrawal.
c) All payments made pursuant to Section 6.4(a) (1) and (3)
shall be payable on the first day of the month.
ARTICLE VII
-----------
BENEFICIARY DESIGNATION
-----------------------
7.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at
any time, to designate any person or persons as his Beneficiary or
Beneficiaries (both principal as well as contingent) to wham payment under this
Plan shall be paid in the event of his death prior to complete distribution to
Participant of the benefits due him under the Plan. Any Participant Beneficiary
Designation shall be made in a written instrument filed with the Committee and
shall be effective only when received in writing by the Committee.
7.2 AMENDMENTS. Any Beneficiary designation may be changed by a
Participant by the written filing of such change on a form prescribed by the
Committee. The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed.
7.3 NO PARTICIPANT DESIGNATION. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries predecease
the Participant, then Participant's designated Beneficiary shall be deemed to
be the person or persons surviving him in the first of the following classes in
which there is a survivor, share and share alike:
a) The surviving spouse;
b) The Participant's children, except that if any of the
children predecease the Participant but leave issue surviving,
then such issue shall take by right of representation the share
their parent would have taken if living;
c) The Participant's Estate.
-6-
<PAGE> 10
7.4 EFFECT OF PAYMENT. The payment to the deemed Beneficiary shall
completely discharge Company's obligations under this Plan.
ARTICLE VIII
------------
ADMINISTRATION
--------------
8.1 COMMITTEE; DUTIES. This Plan shall be administered by the Committee.
Members of the Committee may be Participants under this Plan.
8.2 AGENTS. The Committee may appoint an individual to be the Committee's
agent with respect to the day-to-day administration of the Plan. In addition,
the Committee may, from time to time, employ other agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
8.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and binding upon all persons
having any interest in the Plan.
8.4 INDEMNITY OF COMMITTEE. The Company shall indemnify and hold
harmless the members of the Committee against any and all claims, loss, damage,
expense or liability arising from any action or failure to act with respect to
this Plan, except in the case of gross negligence or willful misconduct by the
Committee.
ARTICLE IX
----------
CLAIMS PROCEDURE
----------------
9.1 CLAIM. Any person claiming a benefit, requesting an interpretation or
ruling under the Plan, or requesting information under the Plan shall present
the request in writing to the Committee which shall respond in writing as soon
as practicable.
9.2 DENIAL OF CLAIM. If the claim or request is denied, the written
notice of denial shall be made within ninety (90) days of the date of receipt
of such claim or requested by the Committee and shall state:
a) The reason for denial, with specific references to the
Plan provisions on which the denial is based.
b) A description of any additional material or information
required and an explanation of why it is necessary.
c) An explanation of the Plan's claim review procedure.
-7-
<PAGE> 11
9.3 REVIEW OF CLAIM. Any person whose claim or request is denied or who
has not received a response within ninety (90) days may request review by
notice given in writing to the Committee within sixty (60) days of receiving a
response or one hundred fifty (150) days from the date the claim was received
by the Committee. The claim or request shall be reviewed by the Committee who
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit
issues and comments in writing.
9.4 FINAL DECISION. The decision on review shall normally be made within
sixty (60) days after the Committee's receipt of a request for review. If an
extension of time is required for a hearing or other special circumstances, the
claimant shall be notified and the time limit shall be one hundred twenty (120)
days after the Committee's receipt of a request for review. The decision shall
be in writing and shall state the reasons and the relevant Plan provisions. All
decisions on review shall be final and bind all parties concerned.
ARTICLE X
---------
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
10.1 AMENDMENT. The Board may at any time amend the Plan in whole or in
part, provided, however, that no amendment shall be effective to decrease or
restrict any Deferred Benefit Account maintained pursuant to any existing
deferral commitment under the Plan. Any change in the Declared Pate shall be
prospective only and shall not become effective until the first day of the
calendar year which follows the adoption of the amendment and providing at
least ninety (90) days written notice of the amendment to the Participant.
10.2 TERMINATION OF PLAN. The Board may at any time terminate the Plan
if, in its judgment, the tax, accounting, or other effects of the continuance
of the Plan, or potential payments thereunder would not be in the best
interests of the Company.
-8-
<PAGE> 12
ARTICLE XI
----------
MISCELLANEOUS
-------------
11.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no secured interest or claim in any
property or assets of the Company, nor shall they be beneficiaries of, or have
any rights, claims or interests in any life insurance policies, annuity
contracts or the proceeds therefrom owned or which may be acquired by the
Company ("Policies"). Such Policies or other assets of the Company shall not be
held under any trust for the benefit of Participants, their Beneficiaries,
heirs, successors or assigns, or held in any way as collateral security for the
fulfilling of the obligations of Company under this Plan. Any and all of the
company's assets and Policies shall be, and remain, the general, unpledged,
unrestricted assets of the Company. The Company's obligation under the Plan
shall be merely that of an unfunded and unsecured promise of the Company to pay
money in the future. The Company shall have no obligation under this Plan with
respect to individuals other than that Company's employees, directors or
consultants.
11.2 NON-ASSIGNABILITY. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof, which are,
and all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
11.3 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between the Company
and the Participant, and the Participant (or his Beneficiary) shall have no
rights against the Company except as may otherwise be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of the Company or to interfere with the
right of the Company to discipline or discharge him at any time.
11.4 PARTICIPANT COOPERATION. A Participant will cooperate with the Company
by furnishing any and all information requested by the Company in order to
facilitate the payment of benefits under and by taking such physical
examinations and such other action as may be requested by the Company.
-9-
<PAGE> 13
11.5 TERMS. Whenever any words are used herein in the masculine, they
shall be construed as though they were used in the feminine in all cases where
they would so apply; and wherever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they would so apply.
11.6 CAPTIONS. The captions of the articles, sections and paragraphs
of this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
11.7 GOVERNING LAW. The provisions of this Plan shall be construed
and interpreted according to the laws of the State of Ohio.
11.8 VALIDITY. In case any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal and invalid provision had never been inserted
herein.
11.9 NOTICE. Any notice or filing required or permitted to be given
to the Committee under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to any member of the
Committee, the President of the Company or the Company's Statutory Agent. Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail as of three (3) days following the date shown on the postmark or on the
receipt for registration or certification.
11.10 SUCCESSORS. The provisions of this Plan shall bind and
inure to the benefit of the Company and its successors and assigns. The term
successors as used herein shall include any corporate or other business entity
which shall, whether by merger, consolidation, purchase or otherwise acquire
all or substantially all of the business and assets of the Company and
successors of any such corporation or other business entity.
IN WITNESS WHEREOF, and pursuant to the resolution of the Board of
Directors of the undersigned corporation, such corporation has caused this
instrument to be executed by its duly authorized officer effective as of
October 1, 1986.
First Bancorporation of Ohio
By: /s/ Howard L. Flood
--------------------------
Howard L. Flood, President
-10-
<PAGE> 1
Exhibit (10)(z)
ADDENDUM TO TERMINATION AGREEMENT
OF JOHN R. MACSO
<PAGE> 2
Exhibit (10) (z)
ADDENDUM
----------
THIS ADDENDUM made this 1st day of September, 1995 is an addendum to the
Termination Agreement dated April 26, 1993 by and between FirstMerit
Corporation ("Company") and John R. Macso ("Employee").
WHEREAS, the Company and Employee have entered into a Termination
Agreement to assure adherence to the policy of the Board of Directors in the
event another entity acquires control of the Company; and
WHEREAS, the Company and Employee mutually desire to amend the terms of
the Termination Agreement.
NOW THEREFORE, for good and valuable consideration, the Company and
Employee hereby agree that the Termination Agreement shall be amended as
follows:
(1) Paragraph 6(b) is hereby amended to read in its entirety
as follows:
"6(b) If either of the conditions in subparagraph (a) above are
satisfied, the compensation and benefits described in subparagraph (c)
below shall continue to be paid or provided until the first to occur
of: (1) the expiration of a period of twenty-four (24) Months after
the Date of Termination of the Employee's employment by the Company
or the Bank or (2) the date as of which the Employee obtains
comparable employment with another employer. In no event, however,
shall such compensation and benefits continue beyond age sixty-five
(65) or the Employee's death, whichever first occurs. For purposes of
this subparagraph (b), the Employee shall be deemed to have obtained
"comparable employment" if the annual compensation payable to the
Employee with respect to his new position is substantially equivalent
to the annual base salary being paid to the Employee by the Company or
the Bank at the time that his employment is terminated. Also, for
purposes of this Agreement, the term "Month" shall mean a period of
thirty (30) days."
(2) Paragraph 6(c)(2) is hereby amended to read in its entirety as
follows:
"6(c)(2) INCENTIVE COMPENSATION. The Company shall pay to the
Employee an incentive award as follows: (A) on the first
anniversary of the Date of Termination of the Employee's employment
with the Company or the Bank the Company shall pay an amount equal to
the average of the incentive compensation paid to the Employee in the
two (2) calendar years immediately preceding the year in which a
Change in Control occurs and (B) on the last day of the twenty fourth
(24th) Month after the Date of Termination of the Employee's
employment with the Company or the Bank the Company shall pay an
amount equal to the amount paid pursuant to subparagraph (A) above."
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(3) Paragraph 9(1) is hereby amended to read in its entirety as
follows:
"9(1) the last day of the twenty-fourth (24th) Month, as
defined in paragraph 6, after a Change in Control occurs; or"
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on
the date above first written.
FirstMerit Corporation
Attest: /s/ Karen E. Rose By: /s/ John R. Cochran
------------------------- -----------------------
Name: John R. Cochran
Title: President and Chief
Executive Officer
COMPANY
Witness: /s/ Christopher J. Maurer /s/ John R. Macso
------------------------- ---------------------------
Employee: John R. Macso
2
<PAGE> 1
EXHIBIT(10)(aa)
FIRSTMERIT CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 2
FIRSTMERIT CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE 1
PURPOSES AND DEFINITIONS
1.1 PURPOSES. The purposes of the Plan are (i) to provide executives with
flexibility with respect to the form and timing of Compensation, (ii) to more
closely align the interests of executives with the interests of the
Corporation's shareholders and (iii) to assist the Corporation and its
Subsidiaries in attracting and retaining qualified executives.
1.2 DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meaning set forth or referenced below:
(a) "BASE COMPENSATION" means the base salary of an Eligible Employee
for services as an employee of the Corporation or a Subsidiary, as
indicated by the records of the Corporation or such Subsidiary, as the case
may be.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "BUSINESS DAY" means a day, except for a Saturday, Sunday or a
legal holiday.
(d) "CHANGE OF CONTROL" means Change of Control as defined in Section
4.3.
(e) "CLOSING PRICE" means the closing price of the Common Stock as
reported on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq").
(f) "COMMITTEE" means the Compensation Committee of the Board.
(g) "COMMON STOCK" means the common stock, no par value, of the
Corporation.
(h) "COMPENSATION" means Base Compensation and Incentive Compensation.
(i) "CORPORATION" means FirstMerit Corporation, and any successor
corporation.
(j) "DEFERRED COMPENSATION" means Base Compensation deferred pursuant
to Section 2.4 and/or Incentive Compensation deferred pursuant to Section
2.3.
(k) "ELIGIBLE EMPLOYEE" means an Eligible Employee as defined in
Section 2.1.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "INCENTIVE COMPENSATION" means the annual incentive award, if any,
payable to an Eligible Employee under the Corporation's or a Subsidiary's
annual incentive plan.
(n) "KEY EMPLOYEE" means an employee of the Corporation or a
Subsidiary designated by the Chief Executive Officer of the Corporation as
a key employee for purposes of the Plan.
(o) "PARTICIPANT" means an Eligible Employee, who has elected to defer
all or any portion of his Compensation under the Plan or to receive all or
a portion of his Incentive Compensation in shares of Common Stock under the
Plan.
(p) "PLAN" means the FirstMerit Corporation Executive Deferred
Compensation Plan.
<PAGE> 3
(q) "PLAN YEAR" means the calendar year.
(r) "RETIREMENT" means retirement at or after age 65 or, with the
consent of the Committee, prior to age 65 but at or after age 55.
(s) "STOCK ACCOUNT" means the account maintained by the Committee in
the name of a Participant pursuant to Section 2.5.
(t) "STOCK CREDIT" means a credit to a Participant's Stock Account,
calculated pursuant to Section 2.5.
(u) "SUBSIDIARY" means a subsidiary of the Corporation to which the
Plan has been extended by the Board.
ARTICLE 2
PARTICIPATION IN THE PLAN
2.1 ELIGIBILITY. The Committee shall from time to time designate one or
more Key Employees as eligible to participate in the Plan (an "Eligible
Employee").
2.2 INCENTIVE COMPENSATION IN COMMON STOCK.
(a) To the extent that an Eligible Employee has not timely elected,
pursuant to Section 2.3, to defer receipt of any Incentive Compensation
payable to him with respect to a Plan Year, such Eligible Employee may
irrevocably elect, in increments of one percent (1%), to receive such
Incentive Compensation in whole shares of Common Stock (and cash for any
fractions of a share). Such election must be made in writing and delivered
to the Committee prior to July l of the Plan Year with respect to which
such Incentive Compensation may be payable or, if earlier, not later than
six months in advance of the date as of which such Incentive Compensation
will be paid, unless the Committee establishes a different time (which may
be earlier or later than the time provided herein) as of which such
election must be made. Absent such a timely election, an Eligible Employee
shall be deemed to have elected to receive such Incentive Compensation
entirely in cash.
(b) The number of shares of Common Stock payable to a Participant
pursuant to an election under Section 2.2(a) shall be equal to the number
of shares of Common Stock that could have been purchased with the amount of
Incentive Compensation that would otherwise have been paid to the
Participant in cash at the Closing Price of shares of Common Stock on the
day such Incentive Compensation would otherwise have been so paid.
(c) An Eligible Employee may, pursuant to Section 2.2(a), file a new
election or revoke a prior election each Plan Year. Unless and until such a
new election or revocation of a prior election is timely made, the election
or deemed election in effect with respect to the immediately preceding Plan
Year shall continue to be effective and irrevocable with respect to the
then current Plan Year.
2.3 DEFERRED INCENTIVE COMPENSATION.
(a) An Eligible Employee may irrevocably elect, in increments of
twenty-five percent (25%), to defer receipt of any Incentive Compensation
otherwise payable to him with respect to any Plan Year. Such election must
be made in writing and delivered to the Committee prior to September 15 of
the Plan Year with respect to which such Incentive Compensation may be
payable or, if earlier, not later than six
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months in advance of the date as of which such Incentive Compensation will
otherwise be paid, unless the Committee establishes a different time (which
may be earlier or later than the time provided herein) as of which such
election must be made. Absent such a timely election, an Eligible Employee
shall be deemed to have elected not to defer receipt of any such Incentive
Compensation.
(b) An Eligible Employee may, pursuant to Section 2.3(a), file a new
election or revoke a prior election each Plan Year. Unless and until such a
new election or revocation of a prior election is timely made, the election
or deemed election in effect with respect to the immediately preceding Plan
Year shall continue to be effective and irrevocable with respect to the
then current Plan Year.
2.4 DEFERRED BASE COMPENSATION.
(a) (i) An Eligible Employee may irrevocably elect, in increments of
one percent (1%), to defer receipt of Base Compensation otherwise
payable to him. Such election must be made in writing and
delivered to the Committee prior to July l of any Plan Year and
shall be effective with respect to Base Compensation otherwise
payable to the Participant during the twelve-month period
commencing on January l of the immediately succeeding Plan Year,
unless the Committee establishes a different time (which may be
earlier or later than the time provided herein) as of, or with
respect to, which such election must be made and/or shall be
effective.
(ii) In the first Plan Year in which a Key Employee becomes an
Eligible Employee, such Eligible Employee may irrevocably elect,
in increments of one percent (1%), to defer receipt of
Base Compensation otherwise payable to him. Such election must be
made in writing and delivered to the Committee within thirty (30)
days of the date as of which such Key Employee became an Eligible
Employee and shall be effective with respect to Base Compensation
otherwise payable to him during the period commencing six months
after the date on which such election was made and delivered to
the Committee and ending on the immediately following December
3l, unless the Committee establishes a different time (which may
be earlier or later than the time provided herein) as of, or with
respect to, which such election shall be effective.
(b) A Participant may, pursuant to Section 2.3(a), file a new election
or revoke a prior election each Plan Year applicable to Base Compensation
otherwise payable to him during the twelve-month period commencing on
January l of the immediately succeeding Plan Year. Unless and until such a
new election or revocation of a prior election is timely made, the
election, if any, then in effect shall continue to be effective and
irrevocable.
2.5 STOCK ACCOUNTS.
(a) A Stock Account shall be maintained by the Committee in the name
of each Participant. A Participant shall be one hundred percent (100%)
vested in his Accounts at all times.
(b) The Stock Account of a Participant shall be credited, as of the
day Deferred Compensation otherwise would have been paid to such
Participant, with Stock Credits equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased with
the amount of such Deferred Compensation at the Closing Price of shares of
Common Stock on the day as of which such Stock Account is so credited and
shall be reduced as of the day that any amount is distributed therefrom by
the number of Stock Credits attributable to such distribution.
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(c) As of the date any dividend is paid to holders of shares of Common
Stock, a Participant's Stock Account shall be credited with additional
Stock Credits equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased, at the Closing Price
of shares of Common Stock on such date, with the amount that would have
been paid as dividends on that number of shares of Common Stock (including
fractions of a share) which is equal to the number of Stock Credits
attributable to the Participant's Stock Account as of the record date of
such dividend. In the case of dividends paid in property, the amount of the
dividend shall be deemed to be the fair market value of the property at the
time of the payment thereof, as determined in good faith by the Committee.
2.6 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT.
(a) Distribution of a Participant's Stock Account shall be made or
commence in accordance with this Section 2.6 as of the first Business Day
of the month following the month in which such Participant's employment as
an employee of the Corporation or any Subsidiary terminates.
(b) A Participant may elect, in the event his employment as an
employee of the Corporation or any Subsidiary terminates due to Retirement,
to receive his Stock Account in monthly cash installments not to exceed one
hundred twenty (120) separate installments or in a single sum. Such single
sum may be paid either in cash or in whole shares of Common Stock (and cash
for any fractions of a share) or in combination of both, in increments of
twenty-five percent (25%). The Committee shall distribute such Stock
Account in accordance with such election or, if no such election is made,
in a single cash sum.
(i) In the event of an election to receive all or a portion of his
Stock Account in shares of Common Stock, the Participant shall, to
the extent of such election, receive one such share with respect to
each Stock Credit allocated to his Stock Account (and cash for any
fractions of a share). In the event of an election or deemed
election to receive all or a portion of his Stock Account in cash,
the Participant shall, to the extent of such election or deemed
election, receive an amount in cash equal to the product of the
number of Stock Credits allocated to his Stock Account and the
Closing Price of shares of Common Stock on the last Business Day of
the month immediately preceding the month in which such distribution
is to be made.
(ii) The amount of a monthly cash installment with respect to such
Participant's Stock Account shall be equal to the product of the
number of Stock Credits attributable to such installment and the
Closing Price of shares of Common Stock on the last Business Day of
the month immediately preceding the month in which such installment
is to be paid. The number of Stock Credits attributable to an
installment shall be equal to the product of the current number of
Stock Credits allocated to such Stock Account and a fraction, the
numerator of which is one and the denominator of which is the total
number of installments elected minus the number of installments
previously paid. All monthly cash installments shall be paid as of
the first Business Day of the month.
(iii) An election pursuant to this Section 2.6(b) must be in writing
and delivered to the Committee at the time an Eligible Employee
becomes a Participant. A Participant may at any time not less than
one year prior to the date as of which the distribution of such
Participant's Stock Account pursuant to this Section 2.6(b) is made
or commences change such election pursuant to an election in writing
delivered to the Committee, which election shall be irrevocable
during such one-year period.
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(c) In the event a Participant's employment as an employee of the
Corporation and any Subsidiary terminates other than due to Retirement or
death, the Participant shall receive a single cash sum equal to the product
of the number of Stock Credits allocated to his Stock Account and the
Closing Price of shares of Common Stock on the last Business Day of the
month immediately preceding the month in which such distribution is to be
made.
2.7 IN-SERVICE DISTRIBUTIONS.
(a) A Participant may, as of the first Business Day of the month,
receive payment of all or part of his Stock Account prior to the
termination of his employment as an employee of the Corporation and any
Subsidiary. Any such election must be in writing and delivered to the
Committee not less than one year in advance of the effective date thereof,
which election shall be irrevocable during such one-year period; provided,
however, that such election shall not be effective with respect to Stock
Credits attributable to Deferred Compensation that otherwise would have
been paid to such Participant within the three-year period immediately
preceding the effective date of such election and any additional Stock
Credits credited with respect to such Stock Credits pursuant to Section
2.5(c); provided, further, that if the Participant's employment as an
employee of the Corporation and any Subsidiary terminates prior to the
effective date of such election, such election shall be deemed
automatically revoked. Such in-service distributions shall be made on the
same basis as distributions upon termination pursuant to Section 2.6(c).
(b) Any amounts withdrawn pursuant to Section 2.7(a) shall be subject
to a 6% penalty. In addition, such Participant may not elect to make
additional deferrals under the plan for the Plan Year commencing after the
Plan Year in which such withdrawal is made.
2.8 DISTRIBUTION UPON DEATH. Notwithstanding any other provision of this
Plan, upon the death of a Participant, whether before or after Retirement or
other termination of employment as an employee of the Corporation and any
Subsidiary, the Committee shall pay all of such Participant's Stock Account in a
single cash sum to such person or persons or the survivors thereof, including
corporations, unincorporated associations or trusts, as the Participant may have
designated. All such designations shall be made in writing and delivered to the
Committee. A Participant may from time to time revoke or change any such
designation by written notice to the Committee. If there is no person or persons
designated or if such persons shall have all predeceased the Participant or
otherwise ceased to exist, such distributions shall be made to the executor or
administrator of the Participant's estate. Any distribution under this Section
2.8 shall be made as soon as practicable following the end of the month in which
the Committee is notified of the Participant's death or is satisfied as to the
identity of the appropriate payee, whichever is later. The amount of such single
cash sum payable under this Section 2.8 shall be equal to the product of the
number of Stock Credits then allocated to such Stock Account and the Closing
Price of shares of Common Stock on the last Business Day of the month
immediately preceding the month of such Participant's death.
2.9 WITHHOLDING TAXES. Any withholding of taxes or other amounts required
by federal, state, or local law shall be withheld from Compensation other than
Deferred Compensation. If necessary, the Corporation may reduce the amount of
Deferred Compensation and/or shares of Common Stock payable pursuant to Section
2.2(a) by an amount equal to any required withholding. In addition, the
Corporation may defer making payments under the Plan until satisfactory
arrangements have been made for the payment of any federal, state or local taxes
required to be withheld with respect to such payment or delivery. Each
Participant shall be entitled to irrevocably elect, at least six months prior to
the date shares of Common Stock would
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otherwise be delivered hereunder, to have the Corporation withhold shares of
Common Stock having an aggregate value equal to the amount required to be
withheld. The value of fractional shares remaining after payment of the
withholding taxes shall be paid to the Participant in cash. Shares so withheld
shall be valued at the Closing Price on the Business Day immediately preceding
the date such shares would otherwise be transferred hereunder.
ARTICLE 3
THE COMMITTEE
3.1 AUTHORITY. The Committee shall have full power and authority to
administer the Plan, including the power to (i) promulgate forms to be used with
respect to the Plan, (ii) promulgate rules of Plan administration, (iii) settle
any disputes as to rights or benefits arising from the Plan, (iv) interpret the
terms of the Plan and (v) make such decisions or take such action as the
Committee, in its sole discretion, deems necessary or advisable to aid in the
proper administration of the Plan.
3.2 ELECTIONS, NOTICES. All elections and notices required to be provided
to the Committee under the Plan must be on such forms, contain such information,
and be made or given at such times as the Committee may require.
3.3 AGENTS. The Committee may appoint an individual to be the Committee's
agent with respect to the day-to-day administration of the Plan. In addition,
the Committee may, from time to time, employ other agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
3.4 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and binding upon all persons
having any interest in the Plan.
3.5 INDEMNITY OF COMMITTEE. The Company has entered into Indemnification
Agreements with each of the members of the Committee protecting them against
such claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except as otherwise indicated in such
Agreement.
3.6 CLAIMS PROCEDURE. Any person claiming an amount under the Plan,
requesting an interpretation or ruling under the Plan, or requesting information
under the Plan shall present the request in writing to the Committee, which
shall respond in writing within ninety (90) days following receipt of the
request. If the claim or request is denied, the written notice of denial shall
state (i) the reasons for denial, (ii) the reference to the pertinent Plan
provisions or legal doctrine upon which the denial is based; (iii) a description
of any additional material or information required and an explanation of why it
is necessary; and (iv) an explanation of the Plan's claim review procedure. Any
person whose claim or request is denied may make a second request for review by
notice given in writing to the Committee. The claim or request shall be reviewed
further by the Committee, and the Committee may, but shall not be required to,
grant the claimant a hearing. A decision on such second request shall normally
be made within sixty (60) days after the date of the second request. If an
extension of time is required for a hearing or other special circumstances, the
claimant shall be notified and
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the time limit shall be one hundred twenty (120) days from the date of the
second request. The decision shall be in writing and shall be final and bind all
parties concerned.
ARTICLE 4
SHARES AVAILABLE
4.1 NUMBER. Three Hundred Thousand (300,000) shares of Common Stock are
available for issuance under the Plan in accordance with the provisions hereof
and such other provisions as the Committee may from time to time deem necessary.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Corporation if, in the opinion of counsel for the
Corporation, such shareholder approval is required. Stock Credits to
Participant's Stock Accounts shall be applied to reduce the maximum number of
shares of Common Stock remaining available under the Plan. Shares of Common
Stock issuable under the Plan may be taken either from authorized but unissued
or treasury shares, as determined by the Corporation.
4.2 ADJUSTMENTS. If at any time the number of outstanding shares of Common
Stock shall be increased as the result of any stock dividend, stock split,
subdivision or reclassification of shares, the number of shares of Common Stock
available under Section 4.1 and the number of Stock Credits with which each
Participant's Stock Account is credited shall be increased in the same
proportion as the outstanding number of shares of Common Stock is increased. If
the number of outstanding shares of Common Stock shall at any time be decreased
as the result of any combination, reverse stock split or reclassification of
shares, the number of shares of Common Stock available under Section 4.1 and the
number of Stock Credits with which each Participant's Stock Account is credited
shall be decreased in the same proportion as the outstanding number of shares of
Common Stock is decreased. In the event the Corporation shall at any time be
consolidated with or merged into any other corporation and holders of shares of
Common Stock receive shares of the capital stock of the resulting or surviving
corporation, there shall be credited to each Participant's Stock Account, in
place of the Stock Credits then credited thereto, new Stock Credits in an amount
equal to the product of the number of shares of capital stock exchanged for one
share of Common Stock upon such consolidation or merger and the number of Stock
Credits with which the Participant's Account then is credited, and the number of
shares of Common Stock available under Section 4.1 shall be similarly adjusted.
If in such a consolidation or merger, holders of shares of Common Stock shall
receive any consideration other than shares of the capital stock of the
resulting or surviving corporation or its parent corporation, the Committee, in
its sole discretion, shall determine the appropriate change in Participants'
Accounts.
4.3 CHANGE OF CONTROL. Notwithstanding any other provision of this Plan,
in the event of a Change of Control of the Corporation, each Participant's Stock
Account shall, within five Business Days thereafter, be distributed in a single
cash sum equal to the product of the number of Stock Credits then allocated to
his Stock Account and the Closing Price of shares of Common Stock or the last
Business Day immediately preceding the Change of Control. For purposes of this
Section 4.3, Change of Control means:
(i) the date the stockholders of the Corporation approve a plan or
other arrangement pursuant to which the Corporation will be
dissolved or liquidated;
(ii) the date the stockholders of the Corporation approve a
definitive agreement to sell or otherwise dispose of all or
substantially all of the assets of the Corporation;
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(iii) the date of approval by the stockholders of the Corporation
and, if required, by the stockholders of the other constituent
corporation of a definitive agreement to merge or consolidate the
Corporation with or into such other corporation, other than, in
either case, a merger or consolidation of the Corporation in which
holders of shares of the Corporation's common stock immediately
prior to the merger or consolidation will have at least a majority
of the ownership of common stock of the surviving corporation (and,
if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the
surviving corporation, a majority of the voting power of the
surviving corporation's voting securities) immediately after the
merger or consolidation, which common stock (and, if applicable,
voting securities) is to be held in the same proportion as such
holders' ownership of common stock of the Corporation immediately
before the merger or consolidation;
(iv) the date any entity, person or group, within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act
of 1934, as amended, other than the Corporation or any of its
Subsidiaries or any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any of its
subsidiaries, shall have become the beneficial owner (as determined
pursuant to Section 13(d) or 16(a) of the Exchange Act) of, or shall
have obtained voting control over, more than twenty percent (20%) of
the outstanding shares of the Common Stock; or
(v) the first day after the effective date of this Plan when
directors are elected such that a majority of the Board of Directors
shall have been members of the Board of Directors for less than two
(2) years, unless the nomination for election of each new director
who was not a director at the beginning of such two (2) year period
was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period.
ARTICLE 5
MISCELLANEOUS
5.1 UNFUNDED PLAN. No promise hereunder shall be secured by any specific
assets of the Corporation, nor shall any assets of the Corporation be designated
as attributable or allocated to the satisfaction of such promises. Participants
shall have no rights under the Plan other than as unsecured general creditors of
the Corporation.
5.2 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void. No such benefit,
prior to receipt thereof pursuant to the provisions of the Plan, shall be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the Participant.
5.3 INVALIDITY. If any term or provision contained herein is to any extent
invalid or unenforceable, such term or provision will be reformed so that it is
valid, and such invalidity or unenforceability will not affect any other
provision or part hereof.
5.4 GOVERNING LAW. This Plan shall be governed by the laws of the State of
Ohio, without regard to the conflict of law provisions thereof.
5.5 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board at any
time may terminate and in any respect amend or modify the Plan; provided,
however, that no such termination, amendment or
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modification shall adversely affect the rights of any Participant or
beneficiary, including his rights with respect to Stock Credits credited prior
to such termination, amendment or modification, without his consent.
Notwithstanding the foregoing, the provisions of this Plan that determine the
amount, price or timing of benefits related to Stock Credits shall not be
amended more than once every six months (other that as may be necessary to
conform to any applicable changes in the Internal Revenue Code of 1986, as
amended or the rules thereunder), unless such amendment would be consistent with
the provisions of Rule 16b-3 (or any successor provisions) promulgated under the
Exchange Act.
5.6 SUCCESSORS AND HEIRS. The Plan and any properly executed elections
hereunder shall be binding upon the Corporation and Participants, and upon any
assignee or successor in interest to the Corporation and upon the heirs, legal
representatives and beneficiaries of any Participant.
5.7 STATUS AS SHAREHOLDERS. Stock Credits are not, and do not constitute,
shares of Common Stock, and no right as a holder of shares of Common Stock shall
devolve upon a Participant unless and until such shares are issued to the
Participant.
5.8 RIGHTS. This Plan shall not give any person the right to continue as
an employee of the Corporation or any Subsidiary or any rights or interests
other than as herein provided.
5.9 USE OF TERMS. The masculine includes the feminine and the plural
includes the singular, unless the context clearly indicates otherwise.
5.10 STATEMENT OF ACCOUNTS. Each Participant in the Plan during the
immediately preceding Plan Year shall receive a statement of his Stock Account
under the Plan as of December 31 of such preceding Plan Year. Such statement
shall be in a form and contain such information as is deemed appropriate by the
Committee.
5.11 COMPLIANCE WITH LAWS. This Plan and the offer, issuance and delivery
of shares of Common Stock and/or the payment and deferral of Compensation under
this Plan are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal reporting,
registration, insider trading and other securities laws) and to such approvals
by any listing agency or any regulatory or governmental authority as may, in the
opinion of counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan be subject to such
restrictions, and the person acquiring the securities shall, if requested by the
Corporation, provide such assurances and representations to the Corporation as
the Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
5.12 PLAN CONSTRUCTION. Anything in this Plan to the contrary
notwithstanding, is the intent of the Corporation that transactions under the
Plan satisfy the applicable requirements of Rule 16b-3 promulgated under Section
16 of the Exchange Act so that persons who are or become subject to Section 16
of the Exchange Act will be entitled to the benefits of such Rule 16b-3 or other
exemptive rules under Section 16 of the Exchange Act and will not be subjected
to avoidable liability thereunder. To the extent any provision of the Plan,
action by the Committee or election by a Participant or Eligible Employee fails
to so comply, it shall be deemed null and void to the extent permitted by law.
5.13 HEADINGS NOT PART OF PLAN. Headings and subheadings in the Plan are
inserted for reference only and are not to be considered in the construction of
the Plan.
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5.14 STOCKHOLDER APPROVAL; EFFECTIVE DATE. This Plan has been approved by
the Board and shall become effective as of January 1, 1996, subject to the
approval of this Plan by the stockholders of the Corporation.
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<PAGE> 1
EXHIBIT (10)(bb)
FIRSTMERIT CORPORATION DIRECTOR DEFERRED COMPENSATION PLAN
<PAGE> 2
FIRSTMERIT CORPORATION
DIRECTOR DEFERRED COMPENSATION PLAN
ARTICLE 1
PURPOSES AND DEFINITIONS
1.1 PURPOSES. The purposes of the Plan are (i) to provide Directors with
flexibility with respect to the form and timing of Compensation, (ii) to more
closely align the interests of Directors with the interests of the Corporation's
shareholders, and (iii) to assist the Corporation in attracting and retaining
qualified individuals to serve as Directors.
1.2 DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meaning set forth or referenced below:
(a) "ACCOUNT" means a Cash Account, a Deferred Benefit Account or a
Stock Account.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "BUSINESS DAY" means a day, except for a Saturday, Sunday or a
legal holiday.
(d) "CASH ACCOUNT" means the account maintained by the Committee in
the name of a Participant pursuant to Section 2.5(a).
(e) "CASH CREDIT" means a credit to a Participant's Cash Account,
expressed in whole dollars and fractions thereof.
(f) "CLOSING PRICE" means the closing price of the Common Stock as
reported on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq").
(g) "COMMITTEE" means the Compensation Committee of the Board.
(h) "COMMON STOCK" means the common stock, no par value, of the
Corporation.
(i) "CORPORATION" means FirstMerit Corporation.
(j) "COMPENSATION" means all fees payable to a Director for services
to the Corporation and/or a Subsidiary as a director, including retainer
fees for service on, and fees for attendance at meetings of, the Board and
any committees thereof, as established by the Board from time to time, but
excluding reimbursements for expenses.
(k) "DEFERRED BENEFIT ACCOUNT" means a deferred benefit account
established for a Participant under the Directors' Deferred Fee Plan before
July 1, 1996.
(l) "DIRECTORS' DEFERRED FEE PLAN" means the FirstMerit Corporation
Directors' Deferred Fee Plan.
(m) "DIRECTOR" means any individual serving on the Board or on the
board of directors of a Subsidiary who is not an employee of the
Corporation or any Subsidiary but does not include an honorary, advisory or
emeritus director.
(n) "PARTICIPANT" means a Director who is a participant in the Plan,
or a former Director who has an Account.
<PAGE> 3
(o) "PLAN" means the FirstMerit Corporation Director Deferred
Compensation Plan.
(p) "PLAN YEAR" means the calendar year, except that for the 1996 Plan
Year, it means the six-month period beginning July 1, 1996 and ending
December 31, 1996.
(q) "STOCK ACCOUNT" means the account maintained by the Committee in
the name of a Participant pursuant to Section 2.5(b).
(r) "STOCK CREDIT" means a credit to a Participant's Stock Account,
calculated pursuant to Section 2.5(b).
(s) "STATED INTEREST RATE" means, with respect to any calendar month,
two percentage points over the average of the composite yield on Moody's
Average Corporate Bond Yield for the month of October immediately preceding
the Plan Year as determined from Moody's Bond Record published by Moody's
Investors Services, Inc. (or any successor thereto), or, if such monthly
yield is no longer published, a substantially similar average selected by
the Corporation. The Committee shall establish the Stated Interest Rate
effective as of January 1 of each Plan Year, which, once established, shall
be used for all interest determinations during such Plan Year.
(t) "SUBSIDIARY" means a subsidiary of the Corporation.
ARTICLE 2
PARTICIPATION IN THE PLAN
2.1 ELIGIBILITY. All Directors shall participate in the Plan.
2.2 CURRENT COMPENSATION.
(a) To the extent that a Director or first time nominee for Director
has not timely elected, pursuant to Section 2.3, to defer receipt of
Compensation payable to him during a Plan Year, such Director or first time
nominee may irrevocably elect, in increments of fifty percent (50%), to
receive current Compensation either in cash or in whole shares of Common
Stock (and cash for any fractions of a share). Any such election must be
made in writing and delivered to the Committee prior to December 15, 1995
with respect to the 1996 Plan Year and thereafter prior to July 1 of any
Plan Year effective as of January 1 of the immediately succeeding Plan
Year; provided that in the case of a first time nominee for Director, such
election must be so made and delivered not later than six months in advance
of the first date in such Plan Year as of which such Compensation will be
paid. Absent such a timely election, a Director or first time nominee for
Director shall be deemed to have elected to receive such Compensation
entirely in cash.
(b) The number of shares of Common Stock payable to a Director
pursuant to an election under Section 2.2(a) shall be equal to the number
of shares of Common Stock that could have been purchased with the amount of
Compensation that would otherwise have been paid to the Director in cash at
the Closing Price of shares of Common Stock on the day such Compensation
would otherwise have been so paid. The balance of such Compensation, if
any, shall be paid to the Director in cash.
(c) A Director may, pursuant to Section 2.2(a), file a new current
Compensation election or revoke a prior current Compensation election each
Plan Year effective as of July 1 of the immediately succeeding Plan Year.
If no new election or revocation of a prior election is made prior to July
1 of any
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Plan Year, the election or deemed election in effect for such Plan Year
shall continue to be effective and irrevocable for the immediately
succeeding Plan Year.
2.3 DEFERRED COMPENSATION.
(a) (i) A Director may irrevocably elect to defer receipt, in
increments of twenty-five percent (25%), of Compensation payable
to him during the immediately succeeding Plan Year. Such election
must be made in writing and delivered to the Committee prior to
December 15, 1995 with respect to the 1996 Plan Year and
thereafter prior to July 1 of any Plan Year effective as of
January 1 of the immediately succeeding Plan Year.
(ii) A first time nominee for Director may irrevocably elect to
defer receipt, in increments of twenty-five percent (25%), of
Compensation payable to him on or after July 1 of the Plan Year
in which he first becomes a Director. Such election must be made
in writing and delivered to the Committee prior to the date on
which such nominee becomes a Director.
(b) A Director may, pursuant to Section 2.3(a)(i), file a new deferred
Compensation election or revoke a prior deferred Compensation election each
Plan Year applicable to the immediately succeeding Plan Year. If no new
election or revocation of a prior election is made prior to July 1 of any
Plan Year, the election, if any, in effect for such Plan Year shall
continue to be effective and irrevocable for the immediately succeeding
Plan Year. If a Director does not timely elect to defer Compensation
payable to him during a Plan Year, all such Compensation shall be paid
directly to such Director in accordance with Section 2.2.
2.4 ALLOCATION OF DEFERRED COMPENSATION. A Participant may irrevocably
elect to initially allocate all or a portion, in increments of twenty-five
(25%), of his deferred Compensation to a Cash Account, a Stock Account, or a
combination of both such Accounts. Any such allocation shall be specified in the
election made pursuant to Section 2.3; provided, however, that in the case of a
first time nominee for Director, such election must be so made and delivered not
later than six months in advance of the first date in such Plan Year as of which
such Compensation would otherwise be paid. Absent such a timely election, a
Participant shall be deemed to have elected to allocate such deferred
Compensation to his Cash Account. Deferred Compensation allocated to a Cash
Account or Stock Account shall result in Cash Credits or Stock Credits,
respectively.
2.5 ACCOUNTS.
(a) The Cash Account of a Participant shall be credited, as of the day
the deferred Compensation otherwise would have been paid to such
Participant, with Cash Credits equal to the dollar amount of such deferred
Compensation and shall be reduced, as of the day that any amount is
distributed or transferred therefrom, by Cash Credits equal to the amount
of such distribution or transfer. As of the last day of each calendar
month, the Participant's Cash Account shall be credited with additional
Cash Credits in an amount equal to the product of the average daily balance
in his Cash Account during such month (determined after adjustment for any
deferred Compensation credited thereto and any amount distributed or
transferred therefrom as of each day in such month) and an interest rate
equal to the Stated Interest Rate.
(b) The Stock Account of a Participant shall be credited, as of the
day the deferred Compensation otherwise would have been paid to such
Participant, with Stock Credits equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased with
the amount of such deferred Compensation at the Closing Price of shares of
Common Stock on the day as of which such
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<PAGE> 5
Stock Account is so credited and shall be reduced as of the day that any
amount is distributed or transferred therefrom by the number of Stock
Credits attributable to such distribution or transfer.
(c) As of the date any dividend is paid to holders of shares of Common
Stock, the Participant's Stock Account shall be credited with additional
Stock Credits equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased, at the Closing Price
of shares of Common Stock on such date, with the amount that would have
been paid as dividends on that number of shares of Common Stock (including
fractions of a share) which is equal to the number of Stock Credits
attributable to the Participant's Stock Account as of the record date of
such dividend. In the case of dividends paid in stock, the amount of the
dividend shall be deemed to be the fair market value of the stock at the
time of the payment thereof, as determined in good faith by the Committee.
(d) No Compensation payable to a Director after June 30, 1996 may be
deferred to a Deferred Benefit Account. As of July 1, 1996, Deferred
Benefit Account balances will be converted to Cash Credits to the
Participants' Cash Accounts, or Stock Credits to Participant's Stock
Accounts, as elected by the Participant. The amount of such Cash Credits
and Stock Credits shall be determined in accordance with Sections 2.5(a),
2.5(b) and 2.5(c), respectively, as if the converted amounts constituted
deferred Compensation on the date of such conversion. Such election must be
in writing and delivered to the Committee prior to December 15, 1995 and
shall be irrevocable. Absent such a timely election, a Participant's
Deferred Benefit Account balance shall be automatically converted to Cash
Credits.
(e) A Participant shall be one hundred percent (100%) vested in his
Accounts at all times.
2.6 DISTRIBUTIONS UPON TERMINATION.
(a) Distribution of a Participant' s Accounts shall be made or
commence in accordance with such Participant's election as of the first
Business Day of the month following the month in which such Participant's
service as a Director ceases unless the Participant has elected a later
month.
(b) A Participant may elect to receive his Accounts in monthly cash
installments not to exceed one hundred twenty (120) separate installments
or in a single sum. Such single sum may be paid either in cash or in whole
shares of Common Stock (and cash for any fractions of a share) or in
combination of both, in increments of twenty-five percent (25%). The
Committee shall distribute such Accounts in accordance with such election
or, if no such election is made, in a single cash installment.
(c) (i) In the event of an election to receive all or a portion of his
Stock Account in shares of Common Stock, the Participant shall, to
the extent of such election, receive one such share with respect
to each Stock Credit (including any Stock Credits resulting from a
transfer pursuant to the second sentence in Section 2.6(c)(ii))
allocated to his Stock Account (and cash for any fractions of a
share). In the event of an election or deemed election to receive
all or a portion of his Stock Account in cash, the Participant
shall, to the extent of such election or deemed election, receive
an amount in cash equal to the product of the number of Stock
Credits allocated to his Stock Account and the Closing Price of
shares of Common Stock on the last Business Day of the month
immediately preceding the month in which such distribution is to
be made.
(ii) In the event of an election or deemed election by the
Participant to receive all or a portion of his Cash Account in
cash, the Participant shall, to the extent of such election or
deemed election, receive an amount in cash equal to the current
balance in such Cash Account. In the
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<PAGE> 6
event of an election by the Participant to receive all or a portion
of his Cash Account in shares of Common Stock, the Participant shall
be deemed to have irrevocably elected to transfer the appropriate
such amount from his Cash Account to his Stock Account in accordance
with Section 2.8(b) effective as of the last Business Day of the
month immediately preceding the month in which such distribution is
to be made.
(d) (i) The amount of a monthly cash installment with respect to a
Participant's Cash Account shall be equal to the product of the current
balance in such Cash Account and a fraction, the numerator of which is one
and the denominator of which is the total number of installments elected
minus the number of installments previously paid.
(ii) The amount of a monthly cash installment with respect to such
Participant's Stock Account shall be equal to the product of the
number of Stock Credits attributable to such installment and the
Closing Price of shares of Common Stock on the last Business Day of
the month immediately preceding the month in which such installment
is to be paid. The number of Stock Credits attributable to an
installment shall be equal to the product of the current number of
Stock Credits attributable to such Stock Account and a fraction, the
numerator of which is one and the denominator of which is the total
number of installments elected minus the number of installments
previously paid.
(iii) All monthly cash installments shall commence and be paid as of
the first Business Day of the month.
(e) A Participant's elections referred to in this Section 2.6 must be
in writing and delivered to the Committee with such Participant's election
to defer Compensation pursuant to Section 2.3(a). A Participant may at any
time not less than one year prior to the date as of which the distribution
of such Participant's Accounts is made or commences change such elections
pursuant to an election in writing delivered to the Committee, which
election shall be irrevocable during such one-year period.
2.7 IN-SERVICE DISTRIBUTIONS.
(a) A Participant may, as of the first Business Day of the month,
receive payment of all or part of his Accounts while still a Director. Any
such election must be in writing and delivered to the Committee not less
than one year in advance of the effective date thereof, which election
shall be irrevocable during such one-year period; provided, however, that
if the Participant' s service as a Director terminates prior to the
effective date of such election, such election shall be deemed
automatically revoked. Such in-service distributions may be made on the
same basis as distributions upon termination pursuant to Section 2.6.
(b) Any amounts withdrawn pursuant to Section 2.7(a) shall be subject
to a 6% penalty. In addition, such Participant may not elect to make
additional deferrals under the plan for the Plan Year commencing after the
Plan Year in which such withdrawal is made.
2.8 TRANSFERS.
(a) A Participant may elect to transfer all or a portion, in
increments of twenty-five percent (25%), of his Stock Account to his Cash
Account effective as of the first business day of any Plan Year. The amount
to be credited to such Participant's Cash Account shall be equal to the
product of the applicable percentage (as elected by the Participant) of the
number of Stock Credits then credited to his Stock Account and the Closing
Price of shares of Common Stock on the effective date of such transfer.
5
<PAGE> 7
(b) A Participant may elect to transfer all or a portion, in
increments of twenty-five percent (25%), of his Cash Account to his Stock
Account effective as of the first business day of any Plan Year. The number
of Stock Credits to be credited to such Participant's Stock Account shall
be equal to the number of shares of Common Stock (including fractions of a
share) that could have been purchased with the value of the applicable
percentage (as elected by the Participant) of the Cash Account at the
Closing Price of shares of Common Stock on the effective date of such
transfer.
(c) Any transfer under this Section 2.8 must be made pursuant to an
irrevocable election in writing delivered to the Committee prior to July 1
of the Plan Year immediately preceding the Plan Year in which such transfer
is to be effective.
2.9 DISTRIBUTION UPON DEATH.
(a) Notwithstanding any other provision of this Plan, upon the death
of a Participant the Committee shall pay all of such Participant's Cash
Account and Stock Account in a single cash sum to such person or persons or
the survivors thereof, including corporations, unincorporated associations
or trusts, as the Participant may have designated. All such designations
shall be made in writing and delivered to the Committee. A Participant may
from time to time revoke or change any such designation by written notice
to the Committee. If there is no person or persons designated or if such
persons shall have all predeceased the Participant or otherwise ceased to
exist, such distributions shall be made to the executor or administrator of
the Participant's estate. Any distribution under this Section 2.9(a) shall
be made as soon as practicable following the end of the month in which the
Committee is notified of the Participant's death or is satisfied as to the
identity of the appropriate payee, whichever is later. The amount of such
single cash sum payable under this Section 2.9(a) with respect to such
Participant's Stock Account shall be equal to the product of the number of
Stock Credits with which such Stock Account then is credited and the
Closing Price of shares of Common Stock on the last Business Day of the
month immediately preceding the month of such Participant's death.
(b) Notwithstanding any other provision of this Plan, upon the death
of a Participant, amounts attributable to his Deferred Compensation Account
shall be distributed in the manner provided in any election or elections
with respect thereto filed by the Participant.
2.10 WITHHOLDING TAXES. The Corporation may defer making payments under
the Plan until satisfactory arrangements have been made for the payment of any
federal, state or local income taxes required to be withheld with respect to
such payment or delivery. Each Director shall be entitled to irrevocably elect,
at least six months prior to the date shares of Common Stock would otherwise be
delivered hereunder, to have the Corporation withhold shares of Common Stock
having an aggregate value equal to the amount required to be withheld. The value
of fractional shares remaining after payment of the withholding taxes shall be
paid to the Director in cash. Shares so withheld shall be valued at the Closing
Price on the regular Business Day immediately preceding the date such shares
would otherwise be transferred hereunder.
ARTICLE 3
THE COMMITTEE
3.1 AUTHORITY. The Committee shall have full power and authority to
administer the Plan, including the power to (i) promulgate forms to be used with
respect to the Plan, (ii) promulgate rules of Plan administration, (iii) settle
any disputes as to rights or benefits arising from the Plan, (iv) interpret the
terms of
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<PAGE> 8
the Plan and (v) make such decisions or take such action as the Committee, in
its sole discretion, deems necessary or advisable to aid in the proper
administration of the Plan.
3.2 ELECTIONS, NOTICES. All elections and notices required to be provided
to the Committee under the Plan must be in such form or forms prescribed by, and
contain such information as is required by, the Committee.
3.3 AGENTS. The Committee may appoint an individual or individuals to be
the Committee's agent with respect to the day-to-day administration of the Plan.
In addition, the Committee may, from time to time, employ other agents and
delegate to them such administrative duties as it sees fit, and may from time to
time consult with counsel who may be counsel to the Company.
3.4 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and binding upon all persons
having any interest in the Plan.
3.5 INDEMNITY OF COMMITTEE. The Company has entered into Indemnification
Agreements with each of the members of the Committee protecting them against
such claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except as otherwise indicated in such
Agreement.
ARTICLE 4
SHARES AVAILABLE
4.1 NUMBER. One Hundred Thousand (100,000) shares of Common Stock are
available for issuance under the Plan in accordance with the provisions hereof
and such other provisions as the Committee may from time to time deem necessary.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Corporation if, in the opinion of counsel for the
Corporation, such shareholder approval is required. Stock Credits to
participant's Stock Accounts shall be applied to reduce the maximum number of
shares of Common Stock remaining available under the Plan. Shares of Common
Stock issuable under the Plan may be taken either from authorized but unissued
or treasury shares, as determined by the Corporation.
4.2 ADJUSTMENTS. If at any time the number of outstanding shares of Common
Stock shall be increased as the result of any stock dividend, stock split,
subdivision or reclassification of shares, the number of shares of Common Stock
available under Section 4.01 and the number of Stock Credits with which each
Participant's Stock Account is credited shall be increased in the same
proportion as the outstanding number of shares of Common Stock is increased. If
the number of outstanding shares of Common Stock shall at any time be decreased
as the result of any combination, reverse stock split or reclassification of
shares, the number of shares of Common Stock available under Section 4.01 and
the number of Stock Credits with which each Participant's Stock Account is
credited shall be decreased in the same proportion as the outstanding number of
shares of Common Stock is decreased. In the event the Corporation shall at any
time be consolidated with or merged into any other corporation and holders of
shares of Common Stock receive shares of the capital stock of the resulting or
surviving corporation, there shall be credited to each Participant's Stock
Account, in place of the Stock Credits then credited thereto, new Stock Credits
in an amount equal to the product of the
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<PAGE> 9
number of shares of capital stock exchanged for one share of Common Stock upon
such consolidation or merger and the number of Stock Credits with which the
Participant's Account then is credited, and the number of shares of Common Stock
available under Section 4.01 shall be similarly adjusted. If in such a
consolidation or merger, holders of shares of Common Stock shall receive any
consideration other than shares of the capital stock of the resulting or
surviving corporation or its parent corporation, the Committee, in its sole
discretion, shall determine the appropriate change in Participants' Accounts.
ARTICLE 5
MISCELLANEOUS
5.1 UNFUNDED PLAN. No promise hereunder shall be secured by any specific
assets of the Corporation, nor shall any assets of the Corporation be designated
as attributable or allocated to the satisfaction of such promises. Participants
shall have no rights under the Plan other than as unsecured general creditors of
the Corporation.
5.2 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void. No such benefit,
prior to receipt thereof pursuant to the provisions of the Plan, shall be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the Participant.
5.3 INVALIDITY. If any term or provision contained herein is to any extent
invalid or unenforceable, such term or provision will be reformed so that it is
valid, and such invalidity or unenforceability will not affect any other
provision or part hereof.
5.4 GOVERNING LAW. This Plan shall be governed by the laws of the State of
Ohio, without regard to the conflict of law provisions thereof.
5.5 AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board at any
time may terminate and in any respect amend or modify the Plan; provided,
however, that no such termination, amendment or modification shall adversely
affect the rights of any Participant or beneficiary, including his rights with
respect to Cash Credits or Stock Credits credited prior to such termination,
amendment or modification, without his consent. Notwithstanding the foregoing,
the provisions of this Plan that determine the amount, price or timing of
benefits related to Stock Credits shall not be amended more than once every six
months (other that as may be necessary to conform to any applicable changes in
the Internal Revenue Code of 1986, as amended or the rules thereunder), unless
such amendment would be consistent with the provisions of Rule 16b-3 (or any
successor provisions) promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act").
5.6 SUCCESSORS AND HEIRS. The Plan and any properly executed elections
hereunder shall be binding upon the Corporation and Participants, and upon any
assignee or successor in interest to the Corporation and upon the heirs, legal
representatives and beneficiaries of any Participant.
5.7 STATUS AS SHAREHOLDERS. Stock Credits are not, and do not constitute,
shares of Common Stock, and no right as a holder of shares of Common Stock shall
devolve upon a Participant unless and until such shares are issued to the
Participant.
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5.8 RIGHTS. Participation in this Plan shall not give any Director the
right to continue to serve as a member of the Board or any rights or interests
other than as herein provided.
5.9 USE OF TERMS. The masculine includes the feminine and the plural
includes the singular, unless the context clearly indicates otherwise.
5.10 STATEMENT OF ACCOUNTS. Each Participant in the Plan during the
immediately preceding Plan Year shall receive a statement of his Accounts under
the Plan as of December 31 of such preceding Plan Year. Such statement shall be
in a form and contain such information as is deemed appropriate by the
Committee.
5.11 COMPLIANCE WITH LAWS. This Plan and the offer, issuance and delivery
of shares of Common Stock and/or the payment and deferral of Compensation under
this Plan are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal reporting,
registration, insider trading and other securities laws) and to such approvals
by any listing agency or any regulatory or governmental authority as may, in the
opinion of counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan be subject to such
restrictions, and the person acquiring the securities shall, if requested by the
Corporation, provide such assurances and representations to the Corporation as
the Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
5.12 PLAN CONSTRUCTION. Anything in this Plan to the contrary
notwithstanding, is the intent of the Corporation that all transactions under
the Plan satisfy the applicable requirements of Rule 16b-3 so that a Director
who is or becomes a member of a committee administering stock compensation plans
of the Corporation will be "disinterested" as defined in Rule 16b-3 for purposes
of administering such plans, will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act, and will not be
subjected to avoidable liability thereunder. To the extent any provision of the
Plan, action by the Committee or election by a Director fails to so comply, it
shall be deemed null and void to the extent permitted by law.
5.13 HEADINGS NOT PART OF PLAN. Headings and subheadings in the Plan are
inserted for reference only and are not to be considered in the construction of
the Plan.
5.14 STOCKHOLDER APPROVAL; EFFECTIVE DATE. This Plan has been approved by
the Board and shall become effective as of July 1, 1996, subject to the approval
of this Plan by the stockholders of the Corporation.
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EXHIBIT (10)(cc)
FIRST AMENDMENT TO THE 1992 STOCK OPTION PROGRAM
<PAGE> 2
FIRST AMENDMENT TO THE
FIRST BANCORPORATION OF OHIO
1992 STOCK OPTION PROGRAM
FIRSTMERIT CORPORATION, FKA FIRST BANCORPORATION OF OHIO, (the
"Company") hereby adopts this First Amendment to the First Bancorporation of
Ohio 1992 Stock Option Program.
R E C I T A L S:
A. The Company previously adopted the First Bancorporation of Ohio
1992 Stock Option Program (the "Program").
B. Article V(A) of the Program provides that the Board of Directors
of the Company may amend the Program at any time and from time to time.
C. The Company has interpreted the provisions of the Program, which
govern the exercise of options issued under the Program after a Participant's
death, disability or retirement, in a way that permits the optionee to
exercise such options within five years after the date of the termination of
the optionee's employment due to death, disability or retirement, provided that
the optionee recognizes that incentive stock options will be treated as
non-qualified stock options if such options are exercised later than one year
following termination of employment due to death or disability or three months
following termination of employment due to retirement, and the Company desires
to amend the Program to make the language of the Program more consistent with
the foregoing interpretation.
D. In addition, the Company desires to amend the Program to
change its name and to revise the provisions governing the $100,000 annual
limit on the exercise of incentive stock options issued under the Program.
IN CONSIDERATION OF THE FOREGOING, the Company hereby amends the
Program, effective as of January 1, 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
Program. Notwithstanding anything to the contrary contained in the Program,
effective as of January 1, 1995, the name of the Program shall be "FirstMerit
Corporation 1992 Stock Option Program."
<PAGE> 3
2. Article III(F) of the Program is amended and restated to read as
follows with respect to ISOs issued by the Company on and after January 1,
1995:
F. SPECIAL RULE FOR INCENTIVE STOCK OPTIONS: If the
aggregate Fair Market Value of Common Stock with respect to which
ISOs are exercisable for the first time by a Participant during any
calendar year (under this Program and all other plans of the Company
or its parent and Subsidiaries) exceeds $100,000, such ISOs shall be
treated as NQSOs to the extent of the excess. In applying the
foregoing limitation, ISOs shall be taken into account in the order
in which they were granted and the Fair Market Value of Common Stock
subject to such ISOs shall be determined as of the date of grant. If
such limit is exceeded in any calendar year, the Company shall have
the right to designate which shares of Common Stock purchased
pursuant to such ISOs shall be treated as having been acquired by the
Participant pursuant to an ISO.
2. Article III(H)(1) of the Program is clarified to read as follows:
1. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT.
NQSOs and ISOs shall be exercisable for a period equal to the lesser
of five years or the remaining option term; provided, however, that
if the Participant elects to exercise the Participant's ISOs (a)
later than three (3) months after the date of the Participant's
Termination of Employment due to retirement or (b) twelve (12) months
after the date of the Participant's Termination of Employment due to
disability, such ISOs shall be treated as NQSOs under the Code for
purposes of calculating the federal income tax applicable as a result
of the exercise of such ISOs and the subsequent disposition of the
acquired shares.
3. Except as expressly provided in this Amendment, the remaining
terms and conditions of the Program shall remain in full force and effect.
IN WITNESS WHEREOF, FirstMerit Corporation has caused this
First Amendment to the Program to be duly executed and adopted this 17th day of
August, 1995.
FIRSTMERIT CORPORATION
Attest: /s/ Terry E. Patton By: /s/ John M. Cochran
------------------- -------------------
Secretary John M. Cochran
Its: President & Chief
Executive Officer
-2-
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF FIRSTMERIT CORPORATION
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%
FirstMerit Trust Company, National Association
(national trust company) 100%
Peoples Bank, N.A.
(national banking association) 100%
FirstMerit 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%
Citizens Investment Corporation 100%
</TABLE>
<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 19, 1996, relating to the consolidated balance sheets of
FirstMerit Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1995,
which report appears in the 1995 annual report on Form 10-K of FirstMerit
Corporation.
/s/ Coopers & Lybrand
Akron, Ohio
March 15, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000354869
<NAME> FIRST BANCORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 287,671
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,575
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,403,059
<INVESTMENTS-CARRYING> 1,403,059
<INVESTMENTS-MARKET> 1,403,059
<LOANS> 3,770,366
<ALLOWANCE> 46,880
<TOTAL-ASSETS> 5,596,521
<DEPOSITS> 4,501,925
<SHORT-TERM> 486,958
<LIABILITIES-OTHER> 64,757
<LONG-TERM> 0
<COMMON> 103,861
0
0
<OTHER-SE> 439,020
<TOTAL-LIABILITIES-AND-EQUITY> 5,596,581
<INTEREST-LOAN> 325,763
<INTEREST-INVEST> 89,183
<INTEREST-OTHER> 1,681
<INTEREST-TOTAL> 416,627
<INTEREST-DEPOSIT> 145,158
<INTEREST-EXPENSE> 35,775
<INTEREST-INCOME-NET> 235,694
<LOAN-LOSSES> 19,763
<SECURITIES-GAINS> 539
<EXPENSE-OTHER> 227,779
<INCOME-PRETAX> 56,669
<INCOME-PRE-EXTRAORDINARY> 25,719
<EXTRAORDINARY> 5,599
<CHANGES> 0
<NET-INCOME> 31,318
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 4.56
<LOANS-NON> 11,291
<LOANS-PAST> 7,252
<LOANS-TROUBLED> 1,548
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 35,834
<CHARGE-OFFS> 12,925
<RECOVERIES> 4,168
<ALLOWANCE-CLOSE> 46,840
<ALLOWANCE-DOMESTIC> 46,840
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
