<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
=====================================
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0-10161
AMENDMENT NO. 1
FIRSTMERIT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 34-1339938
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO 44308 (330) 384-8000
(Address of principal executive offices) (Zip code) (Telephone Number)
</TABLE>
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 April 22, 1996: $940,819,440.
Indicate the number of shares outstanding of registrant's common
stock as of April 22, 1996: 33,660,844 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.
<PAGE> 2
The undersigned registrant hereby amends the following items of its
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 10-K for the fiscal year ended December 31, 1995, for the purpose
of furnishing the financial statements for the FirstMerit Corporation Employee
Stock Purchase Plan and the FirstMerit Corporation and Subsidiaries Employees'
Salary Savings Retirement Plan:
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
FINANCIAL STATEMENTS
for the years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Statements of Net Assets Available for Plan Benefits
at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
</TABLE>
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of the
FirstMerit Corporation
Employee Stock Purchase Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the FirstMerit Corporation Employee Stock Purchase Plan (the
"Plan") as of December 31, 1995 and 1994 and the related statements of changes
in net assets available for plan benefits for the years then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of
December 31, 1995 and 1994 and the changes in net assets available for plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
April 12, 1996
1
<PAGE> 29
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Cash $ 118,479 $ 143,301
Receivable from employees 13,198 -
Receivable from employer 24,528 -
Investment in FirstMerit Corporation common
shares, at fair value 734,490 478,541
--------- ---------
Net assets available for plan benefits $ 890,695 $ 621,842
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN 2
<PAGE> 30
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Additions to plan assets attributable to:
Employee contributions $ 310,278 $ 294,036
Employer contributions 36,301 25,963
Dividend income 25,775 17,692
Net appreciation (depreciation) in fair value of FirstMerit Corporation
common shares 128,081 (9,428)
------------ -------------
Total additions 500,435 328,263
------------ -------------
Deductions to plan assets attributable to:
Benefits paid to participants 205,827 87,999
Dividends paid to participants 25,755 17,692
------------ -------------
Total deductions 231,582 105,691
------------ -------------
Net increase 268,853 222,572
Net assets available for plan benefits, beginning of year 621,842 399,270
------------ -------------
Net assets available for plan benefits, end of year $ 890,695 $ 621,842
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN 3
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION:
The following brief description of the FirstMerit Corporation (the
"Corporation") Employee Stock Purchase Plan (the "Plan") is provided for
general information purposes only. Participants should refer to the
Prospectus for more complete information.
GENERAL: The Board of Directors of the Corporation established the Plan
on February 13, 1992 which was approved by the shareholders at the annual
meeting on April 8, 1992. The Plan provides eligible full-time employees
of the Corporation with the opportunity to acquire the Corporation's
Common Shares on a payroll deduction basis.
CONTRIBUTIONS: Contributions to the Plan consist of participant payroll
deductions, post tax, of a specific dollar amount up to five percent of the
participant's compensation. The election to participate in the Plan must
be completed on or before 15 business days prior to the commencement of a
semiannual grant period. The semiannual grant dates are July 2 and
January 2.
All contributions to the Plan are maintained by the Trust and Financial
Services Division of First National Bank of Ohio. First National Bank of
Ohio is a subsidiary of the Corporation, as well as the trustee of the
Plan.
VESTING: Participant's are 100% vested in their account balances at all
times.
PURCHASES OF COMMON SHARES: Under the Plan, up to 200,000 of the
Corporation's Common Shares may be issued, subject to adjustment in
the event of certain transactions affecting the Corporation's capital
structure. Each participant in the Plan on a semiannual grant date is
granted the option to purchase, from such funds as contributed by the
participant, whole Common Shares of the Corporation at the option price of
85% of the fair market value of such shares valued as of the business day
immediately preceding the semiannual grant date. Shares of Common stock
granted pursuant to the Plan may be authorized but issued shares, shares
now or hereafter held in the treasury of the Company, or shares purchased
on the open market. When shares are purchased on the open market, the
employer must reimburse the plan for 15% of the purchase price through
employer contributions. All such Common Shares acquired on behalf of a
participant under the Plan are maintained on a book entry basis on the
records of the Corporation in an account for the participant.
ELIGIBILITY: Any person who has been employed by the Corporation or any
of its subsidiaries for at least six months and who currently is employed
on a regular full-time basis (any person customarily employed at least 20
hours per week) is eligible to participate in the Plan. Executive officers
of the Corporation are not considered eligible employees.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN 4
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PLAN DESCRIPTION, CONTINUED:
TRANSFERABILITY: Rights to purchase Common Shares under the Plan are not
transferable, except by will or the laws of descent of distribution, and
they may not be subjected to any lien or liability. Options expire on
termination of employment for any reason other than disability or leave of
absence. No participant may purchase shares under the Plan if, after the
purchase, the participant would own more than 5% of the outstanding Common
Shares of the Corporation. In addition, no participant may purchase shares
exceeding $25,000 in fair market value in any one calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared on an accrual basis in accordance with generally accepted
accounting principles.
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.
INVESTMENTS: The investment in the Corporation's common shares is valued
at fair market value using readily available published market values.
The Plan presents in the statements of changes in net assets available
for plan benefits the net appreciation (depreciation) in the fair value of
its investments which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
ADMINISTRATIVE EXPENSES: Administrative expenses of the plan are paid by
the Corporation.
3. RIGHT TO TERMINATE:
Although it has not expressed any interest to do so, the Corporation has
the right to terminate the Plan at any time. In the event of Plan
termination all assets in the Plan must be used solely for distributions to
Plan participants.
4. INCOME TAX STATUS:
The Plan is a non-qualified plan under the Internal Revenue Code. The Plan
is not exempt from federal income taxes.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN 5
<PAGE> 33
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
FINANCIAL STATEMENTS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Index of Financial Statements and Supplemental Schedules
Pages
-----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Statements of Nets Assets Available for Plan Benefits
at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-8
Supplemental Schedules:
Assets Held for Investment as of December 31, 1995 . . . . . . . . . . . . . . . . . . . . 9
Transactions or Series of Transactions in Excess of 5% of the
Current Value of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
FirstMerit Corporation
We have audited the statements of net assets available for plan benefits of the
FirstMerit Corporation and Subsidiaries Employees' Salary Savings Retirement
Plan (the Plan) as of December 31, 1995 and 1994, and the related statements of
changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan
as of December 31, 1995 and 1994, and the changes in net assets available for
plan benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary schedules included on
pages 9 and 10 are presented for purposes of additional analysis and are not
a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplementary information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
April 4, 1996
1
<PAGE> 35
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Mutual funds:
Federated Government Obligations Fund $ 133,401 $ 375,734
Federated Short/Intermediate Government Fund 841,341 673,605
Federated Capital Preservation Fund 2,576,585 2,671,383
Fidelity Advisor Series IV Ltd. Term Bond Fund 921,724 745,310
Fidelity Advisor Equity Portfolio Growth Fund 2,977,691 1,720,000
Fidelity Blue Chip Growth Fund 3,603,369 2,291,744
Fidelity Overseas Fund 1,130,681 926,556
Newpoint Equity Fund 1,451,931 863,370
-------------- ---------------
13,636,723 10,267,702
-------------- ---------------
FirstMerit Corporation Common Stock 26,372,280 19,443,625
-------------- ---------------
Total 40,009,003 29,711,327
-------------- ---------------
Cash 98,354 60,744
Loans to participants 169,548 69,238
-------------- ---------------
267,902 129,982
-------------- ---------------
Net assets available for plan benefits $ 40,276,905 $ 29,841,309
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
<PAGE> 36
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Additions:
Contributions:
Participants' contributions $ 3,547,691 $ 3,305,292
Employers' contributions 2,233,162 1,940,567
-------------- ---------------
5,780,853 5,245,859
Investment income: -------------- ---------------
Interest 10,321 165,443
Dividends 1,160,095 847,851
Net unrealized appreciation (depreciation) of investments 6,127,616 (1,006,697)
-------------- ---------------
7,298,032 6,597
-------------- ---------------
Assets received from new participants 1,044,452 1,357,303
-------------- ---------------
Total additions 14,123,337 6,609,759
-------------- ---------------
Deductions:
Withdrawals by former participants 3,687,741 2,392,247
-------------- ---------------
Total deductions 3,687,741 2,392,247
-------------- ---------------
Excess of additions over deductions 10,435,596 4,217,512
-------------- ---------------
Net assets available for plan benefits at beginning of period 29,841,309 25,623,797
-------------- ---------------
Net assets available for plan benefits at end of period $ 40,276,905 $ 29,841,309
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN 3
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN:
The following brief description of the FirstMerit Corporation (FirstMerit)
and Subsidiaries Employees' Salary Savings Retirement Plan (the Plan)
provides only general information. Participants should refer to the
Plan Agreement for a more complete description of the Plan's provisions.
A. GENERAL
The Board of Directors of FirstMerit Corporation established this
defined contribution plan as of October 1, 1985. The Plan covers all
employees of FirstMerit, First National Bank of Ohio, The Old
Phoenix National Bank of Medina, Peoples National Bank, Peoples Bank,
N.A., FirstMerit Trust Co., N.A., FirstMerit Bank, FSB, EST National
Bank, and Citizens National Bank (effective February 1, 1995) (the
"Employers") who have one year of service and have attained the age of
21. The Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
B. CONTRIBUTIONS
In 1988, the Plan allowed each participant to contribute from two
percent to six percent (in one percent increments) of compensation. The
Plan was amended July 1, 1989 to increase the maximum participant
contribution to ten percent. The Plan was further amended on January 1,
1990 to allow each participant to contribute from one percent to fifteen
percent of compensation. Such contributions are known as voluntary
pretax employee contributions. A participant's voluntary pretax
contributions and earnings are immediately vested and non-forfeitable.
Each employer contributes as a matching contribution an amount equal to
50 percent of the participant's voluntary pretax contribution. The
employer will not make a matching contribution with respect to any
portion of a participant voluntary pretax contribution that exceeds six
percent of the participant's basic compensation. These employer
matching contributions and earnings are immediately vested and
non-forfeitable.
In January 1993, the Plan was amended to include a Retiree Medical
Matching Program. This program provided for each employer to make
additional matching contributions equal to 50% of the participant's
voluntary pretax employee contributions which do not exceed three
percent of the participant's basic compensation. Participants will
become vested in the Retiree Medical Matching Program upon achieving
five years of service or upon attaining normal retirement age.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN 4
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. DESCRIPTION OF THE PLAN, CONTINUED:
C. PARTICIPANTS' ACCOUNTS
First National Bank of Ohio (a subsidiary of FirstMerit), as the
trustee for the Plan, maintains separate accounts for each
participant. For the period of January 1, 1994 to September 30, 1994,
each participant could direct his contributions be invested in
FirstMerit Corporation common stock, a fixed income fund, an equity
fund, a guaranteed income fund or a combination thereof with the
minimum investment in any option of 25 percent. Effective October 1,
1994, the Plan was amended to allow each participant to direct his
contributions be invested in FirstMerit Corporation common stock, a
stable value fund, a short-term government bond fund, an intermediate
bond fund, a high-quality, large capitalized stock fund, a blue chip
growth fund, a growth stock fund, an international stock fund, or a
combination thereof with the minimum investment in any option of 5
percent. Employer matching contributions are invested solely in
FirstMerit Corporation common stock purchased on the open market by the
trustee.
D. PAYMENT OF BENEFITS:
Distributions to participants are made by one or more of the
following methods: (1) a single lump-sum payment, in cash; or (2)
payments in equal or nearly equal monthly, quarterly, semi-annual, or
annual installments over any period not exceeding 10 years or the
participant's life expectancy at the date such payments commence, if
less.
E. ADMINISTRATIVE EXPENSES
All expenses associated with administering the Plan, including
the trustee's fees and brokerage commissions on purchases of and
transfers between Investment Funds, are paid by the Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on an
accrual basis in accordance with generally accepted accounting
principles.
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. INVESTMENTS
Investments in securities are stated at current value. The current
value of marketable securities is based on quotations obtained from
national securities exchanges.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN 5
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Summary of Significant Accounting Policies, Continued:
The current value of the investments in the mutual funds is based
upon the number of units held by the Plan at December 31, and the
current value of each unit based upon quotations and bids obtained
from national securities exchanges on the securities in the funds.
Securities transactions are recognized on the trade date (the date
the order to buy or sell is executed).
The Plan presents in the Statements of Changes in Net Assets
Available for Plan Benefits, the net appreciation (depreciation)
in the fair value of its investments which consists of the
realized gains or losses and the unrealized appreciation
(depreciation) on these investments.
3. Investments:
During 1995 and 1994, the Plan's investments (including investments
bought, sold, and held during the period) appreciated (depreciated)
in value as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- -----------------
<S> <C> <C>
Investments at current value:
U.S. Government agencies:
U.S. Treasury notes $ - $ (97,062)
Federal Home Loan Banks - (47,606)
Mutual funds:
Federated Short/Intermediate Government 21,338 (9,046)
Frank Russell Investment Company Capital Guaranteed Fund - (153,810)
Frank Russell Investment Company International Securities Fund - (35,307)
Fidelity Advisor Series IV Ltd. Term Bond 41,586 (3,480)
Fidelity Advisor Equity Portfolio Income - (36,465)
Fidelity Advisor Equity Portfolio Growth 549,719 (40,972)
Fidelity Blue Chip Growth Fund 386,868 (25,763)
Fidelity Overseas Fund 64,283 (27,052)
Newpoint Equity Fund 258,306 4,315
FirstMerit Corporation Common Stock 3,783,432 (1,193,627)
---------------- ----------------
Total $ 5,105,532 $ (1,665,875)
================ ================
</TABLE>
4. Federal Income Taxes:
The Plan and Trust qualify under Section 401 of the Internal Revenue
Code and the Trust is exempt from federal income taxes under Section
501(a).
5. Plan Termination:
Although they have not expressed any intent to do so, the Plan may be
terminated by unanimous action of the Boards of Directors of the
participating employers.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
6
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. ACQUISITION:
Effective January 1, 1995, FirstMerit Corporation acquired CIVISTA
Corporation located in Canton, Ohio. The 401(k) plan of the CIVISTA
Corporation was merged into the FirstMerit Corporation and Subsidiaries
Employees' Salary Savings Retirement Plan effective February 1, 1996.
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN 7
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. Statement of Changes in Net Assets Available for Plan Benefits by Fund:
<TABLE>
<CAPTION>
Fidelity
Federated Advisor Fidelity
Short/ Federated Series IV Advisor
Intermediate Capital Ltd. Equity
FirstMerit Government Preservation Term Bond Portfolio
Stock Fund Fund Fund Growth Fund
------------- ------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Additions:
Contributions:
Participants' contributions $ 1,067,074 $ 130,479 $ 382,628 $ 174,733 $ 554,694
Employers' contributions 2,233,162
------------- ------------- ------------- -------------- ----------------
3,300,236 130,479 382,628 174,733 554,694
------------- ------------- ------------- -------------- ----------------
Investment income:
Interest 10,321
Dividends 855,394 44,336 152,897 52,633 17,692
Net unrealized appreciation (depreciation) of
investments 3,897,372 139,625 27,758 37,631 837,283
------------- ------------- ------------- -------------- ----------------
4,763,087 183,961 180,655 90,264 854,975
------------- ------------- ------------- -------------- ----------------
Assets received from new participants 936,121 9,563 20,479 3,326 25,634
------------- ------------- ------------- -------------- ----------------
Total additions 8,999,444 324,003 583,762 268,323 1,435,303
------------- ------------- ------------- -------------- ----------------
Deductions:
Withdrawals by former participants 2,175,202 156,267 678,560 91,909 177,612
------------- ------------- ------------- -------------- ----------------
Total deductions 2,175,202 156,267 678,560 91,909 177,612
Excess of additions over deductions 6,824,242 167,736 (94,798) 176,414 1,257,691
------------- ------------- ------------- -------------- ----------------
Net assets available for plan benefits at
beginning of period 19,949,341 673,605 2,671,383 745,310 1,720,000
------------- ------------- ------------- -------------- ----------------
Net assets available for plan benefits at end of
period $ 26,773,583 $ 841,341 $ 2,576,585 $ 921,724 $ 2,977,691
============= ============= ============= ============== ================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Blue Chip Fidelity Newpoint
Growth Overseas Equity
Fund Fund Fund Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Additions:
Contributions:
Participants' contributions $ 685,268 $ 292,826 $ 259,989 $ 3,547,691
Employers' contributions 2,233,162
------------- ------------- ------------- -------------
685,268 292,826 259,989 5,780,853
------------- ------------- ------------- -------------
Investment income:
Interest 10,321
Dividends 13,441 12,763 10,939 1,160,095
Net unrealized appreciation (depreciation) of
investments 822,610 (16,774) 382,111 6,127,616
------------- ------------- ------------- -------------
836,051 (4,011) 393,050 7,298,032
------------- ------------- ------------- -------------
Assets received from new participants 35,635 6,143 7,551 1,044,452
------------- ------------- ------------- -------------
Total additions 1,556,954 294,958 660,590 14,123,337
------------- ------------- ------------- -------------
Deductions:
Withdrawals by former participants 245,329 90,833 72,029 3,687,741
------------- ------------- ------------- -------------
Total deductions 245,329 90,833 72,029 3,687,741
Excess of additions over deductions 1,311,625 204,125 588,562 10,435,596
------------- ------------- ------------- -------------
Net assets available for plan benefits at
beginning of period 2,291,744 926,556 863,370 29,841,309
------------- ------------- ------------- -------------
Net assets available for plan benefits at end of
period $ 3,603,369 $ 1,130,681 $ 1,451,931 $ 40,276,905
============= ============= ============= =============
</TABLE>
Note: The FirstMerit Corporation Common Stock Fund includes cash, and
loans to participants.
8
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
<PAGE> 42
Item 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1995
<TABLE>
<CAPTION>
Current
Cost Value
----------------- -----------------
<S> <C> <C>
Mutual Funds:
Federated Government Obligations Funds - 133,401.9 units $ 133,401 $ 133,401
Federated Short/Intermediate Government - 80,665.51 units 829,049 841,341
Federated Capital Preservation - 257,658.51 units 2,576,585 2,576,585
Fidelity Advisor Series IV ltd. Term Bond - 85,108.44 units 883,618 921,724
Fidelity Advisor Equity Portfolio Growth - 78,567.05 units 2,420,953 2,977,691
Fidelity Blue Chip Growth - 117,106.56 units 3,213,476 3,603,369
Fidelity Overseas Fund - 38,895.13 units 1,093,450 1,130,681
Newpoint Equity Fund - 113,966.31 units 1,189,309 1,451,931
----------------- -----------------
12,339,841 13,636,723
FirstMerit Corporation Common Stock - 879,076 shares 18,366,922 26,372,280
Cash 98,354 98,354
Loans to participants 169,548 169,548
----------------- -----------------
$ 30,974,665 $ 40,276,905
================= =================
</TABLE>
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIRMENT PLAN 9
<PAGE> 43
Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1995
FirstMerit Corporation Employees' Salary Savings Retirement Plan
<TABLE>
<CAPTION>
Number Number of Purchase Selling Cost of Gain
Asset Description of Shares Transactions Price Price Asset on Sale
- ------------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Category 3: Series of transactions in
same security exceeds 5% of value
Federated Capital Preservation Fund
Issue: 140411109 82,490 109 $ 824,903
Federated Capital Preservation Fund
Issue: 140411109 91,970 126 $ 919,699 $ 919,699
Fidelity Blue Chip Growth Fund
Issue: 316389303 44,520 164 $ 1,343,673
Fidelity Blue Chip Growth Fund
Issue: 316389303 15,707 111 $ 478,011 $ 419,095 $ 58,916
FirstMerit Corporation Common Stock
Issue: 337915102 220,714 84 $ 5,595,973
FirstMerit Corporation Common Stock
Issue: 337915102 83,379 137 $ 2,123,175 $ 1,684,330 $ 438,845
Federated Government Obligations Fund
Issue: 60934N104 5,350,313 169 $ 5,350,313
Federated Government Obligations Fund
Issue: 60934N104 5,592,646 100 $ 5,592,646 $ 5,592,646
</TABLE>
FIRSTMERIT CORPORATION
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN 10
<PAGE> 44
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
Report of Independent Accountants
Statements of Net Assets Available for FirstMerit
Corporation Employee Stock Purchase Plan
Benefits at December 31, 1995 and 1994
Statements of Changes in Net Assets Available for
FirstMerit Corporation Employee Stock
Purchase Plan Benefits for the years ended
December 31, 1995 and 1994
Notes to Financial Statements
Report of Independent Accountants
<PAGE> 45
Statements of Net Assets Available for FirstMerit
Corporation and Subsidiaries Employees' Salary
Savings Retirement Plan Benefits December 31, 1995
and 1994
Statements of Changes in Net Assets Available for
FirstMerit Corporation and Subsidiaries
Employees' Salary Savings Retirement Plan
Benefits for the years ended December 31,
1995 and 1994
Notes to Financial Statements
<PAGE> 46
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 29th day of April, 1996.
FIRSTMERIT CORPORATION
By: /s/ Gary J. Elek
---------------------------------
Gary J. Elek,
Senior Vice President and
Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. ITEM
---------------------------------------------------------------------
<S> <C>
23 Consent of Coopers & Lybrand, L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 23
The Board of Directors
FirstMerit Corporation
We consent to the incorporation by reference in the Registration
Statement Nos. 33-7266, 33-47074, 33-47147, 33-57076, 33-57557 and 33-63101
on Forms S-8, of (i) 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; (ii) our report dated April 12, 1996, relating
to the Statements of Net Assets Available for Plan Benefits at December 31,
1995 and 1994 and the Statements of Changes in Net Assets Available for Plan
Benefits for the years then ended; and (iii) our report dated April 4, 1996,
relating to the Statements of Net Assets Available for Plan Benefits December
31, 1995 and 1994, and the Statements of Changes in Net Assets Available for
Plan Benefits for the years then ended; all of such reports appear in Amendment
No. 1 to the annual report on Form 10-K of FirstMerit Corporation.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
April 29, 1996
